Differential Pricing decision

Problem #1 SPECIAL ORDER PROBLEM Sport company produces a ball bearing used in bantam cars. Each ball bearing sells for P45 and the company sells approximately 500,000 ball bearings each year. Unit costs data for 2006 given below: Fixed Variable Fixed Variable Direct materials P12 Factory overhead P8 P4 Direct labor P10 Distribution costs 2 4 Sport has received an offer from a foreign buyer to purchase 50,000 ball bearings. Domestic sales would not be affected by this transaction. The offer price is P37. If the offer is accepted, variable distribution costs will increase P2 per ball bearing for shipping, insurance, and import duties. The company has idle capacity to produce the offer. REQUIRED: 1. What is the relevant unit cost to this special order? 2. Determine the net effect of the special order. PROBLEM # 2 SELL OR PROCESS FURTHER PROBLEM Selpro Company uses a joint process to produce Product A, B, and C. Joint production costs for 2006 were P200,000 and are allocated using the relative-sales-value at split-off method. Each product may be sold at its split-off point or processed further. Additional processing costs are entirely variable. Relevant data are given below: Product Sales Value at Additional Final Split-off Processing Costs Sales value P100,000 P 40,000 P200,000 200,000 50,000 240,000 40,000 60,000 80,000 P340,000 P150,000 P520,000 REQUIRED: 1. To maximize profit, which product or products should be sold at split-off point and which product or products should be processed further? 2. If the alternative were either to sell all at split-off point or process further all the products, which alternative would you recommend? PROBLEM #3 MAKE OR BUY PROBLEM Malee Company has 15,000 hours of idle capacity. They need 20,000 units of a component part used in its products lines. It is estimated that each unit will take one-half machine hour for production. The following information is available. Cost to make the parts: Materials P14 Direct labor 18 Factory overhead (75% of direct labor cost per unit) Variable factory overhead (40% of factory overhead per unit) Cost to buy the parts per unit from the supplier P45 If the Malee Company buys the parts rather than producing them, it will save 60% of fixed overhead cost per unit. REQUIRED: 1. Determine the relevant unit costs