Directions: Read the given problems carefully. Solve the following requirements and show your solutions. Round off your final answer into two decimal places. Put a boxin your final answers. Problem A: Mikaya Company produces merchandise with the following information: DECISION GUIDELINES Where can we save DECISIONS 1. Make or buy (insource or outsource) a component parts 2. Accept or reject special sales order? 3. Sell as is or process further 4. Optimization of resources 5. Replace or retain an old asset? If there is incremental profit, accept. If there is profit from further processing, then go ahead. Prioritize the product that that gives the highest contribution margin on the limited resource If the net cash inflows is greater than the net outflows, replace the asset. If sales are greater than the shutdown point, better continue operating. If the expected increase in sales is greater than the incremental cost of storage, then sell later. 6. Continue operations or temporary shutdown 7. Sell now or later Given the following data: Unit Sales Price P80 per unit Unit Variable Cost P48 per unit Total Fixed Cost P640,000.00 per annum Units sold for the year 25.000 units Solve for the following requirements: 1. How many units must be produced for the company to breakeven? (5 points) 2. What is the breakeven point in sales pesos (5 points) 3. If sales increase by P400.000.00, how much would you expect income to increase? (10 points) 4. Product A has a CM of P80 per unit, a CM Ratio of 50%, and requires 4 machine hours to produce. Product B has a CM of 120 per unit, a CM Ratio of 40%, and requires 5 machine hours to produce. If the company has limited hours available, what product should it produce? Why? (10 points) 5. Mikaya Company has 12.000 units of product X in storage. This product is now out-of-fashion but is expected to regain market acceptance in the next 10 months. The total cost of producing the product is P240.000.00. 60% of which is variable. It is now kept in a special storage of which the company pays monthly rental of P8,000.00. The product has a regular sales price of P20 per unit but is expected to be sold at P14 per unit when fashion acceptability recovers. A merchandiser has offered to buy 12.000 units at P8 per unit. Should the company sell now or later? Discuss. (10 points) 6. The company has an opportunity to acquire a new equipment to replace its existing equipment. The new equipment would cost P900,000.00 and has a five year useful life, with a zero disposal price. Variable operating cost would be P1 million per year. The present equipment has a book value of P500,000.00 and a remaining useful life of 5 years. Its disposal price now is PP50,000.00 but would be zero after 5 years. Variable operating costs would be P1,250,000.00 per year. Considering the five years in total, should the company replace or retain the assets Discuss. (10 points)
