Any one of three different productlines can be produced by Steiner Mills, Inc., with the present equipment in one of the divisions.The annual depreciation of the equipment is P6,400; and the annual cost to operate the equipment, regardless of product line manufactured is P 4,600.

Product A is expected to yield sales revenue of P71,000 a year with increased costs of production amounting to P42,000.Product B shouldyield sales revenue of P46,000 a year with increased costs of P15,000.Product C should yield sales revenue ofP117,000with increased costs of P96,000.

Questions:

1.Which of the three product lines seems to offer the best profit potential based on the information given.Show computations.

2.What is the best product line and what is theopportunity cost of selecting only that best product line.

Cost Allocation

From the data below allocate the estimated occupancy cost ofP80,000 per year base on the relative floor space in each cost center:

Cost Centers Percent of Floor Space Occupancy Cost

General 10 _____________

Barrel 30 _____________

Wick 40 _____________

Assembly 20 _____________