Department 1 of maurice company is being evaluated for elimination. It has contribution to overhead of P400,000. It receives an allocated overhead of P1 million, 10% of which cannot be eliminated. The elimination of Division A would affect pre-tax income by:

a. P400,000 decrease

b. 400,000 increase

c. P500,000 decrease

d. 500,000 increase

CJ has the opportunity to increase annual sales by P1 million by selling to new riskier customers. It has been estimated that uncollectible expenses would be 15% and collection costs, 5%. The manufacturing and selling costs are 70% of sales, and the corporate tax rate is 35%. If the company pursues this opportunity, the after-tax profit will

a. Increase by P35,000

b. Increase by P97,500

c. Increase by P65,000

d. remains the same

KPOP company owns equipment that is used to manufacture important parts for its production process. The company plans to sell the equipment for P10,000 and select one of the following alternatives: acquire new equipment for P80,000 or purchase the important parts from an outside company at P4 per part. The company should analyze the alternative by comparing the cost of manufacturing the parts:

a. plus P80,000 with the cost of buying the parts less P10,000

b. with the cost of buying the parts less P10,000

c. less P10,000 with the cost of buying the parts

d. with the cost of buying the parts

The effect on a companys profit of discontinuing a department with a contribution to overhead of P16,000 and allocated overhead of P32,000 of P14,000 cannot be eliminated, would be to:

a. Decrease profit by P2,000

b. Decrease profit by P18,000

c. Increase profit by P2,000

d. Increase profit by P16,00

with solutions