G 4G 1 1 : 1 9:45 + 4G1 91 Activity 5_Rel... EXERCISES: RELEVANT COSTING with LINEAR PROGRAMMING 1. TOTAL ANALYSIS VS. DIFFERENTIAL ANALYSIS ESA Company has a single product called Eloy. The company currently sells 10,000 units of Eloy at a price of P 40 per unit. The product costs at this level of activity are given below: Variable Costs: Fixed Costs: Direct materials P 10 Fixed Overhead P 50,000 Direct labor Fixed Selling Expense 30,000 Variable Overhead NUTO Variable Selling Expense REQUIRED: A) What is the present profit? B) The company could increase its sales by 20% if it spends P 20,000 for advertisements. Determine the effect on company profit using: 1) Total approach 2) Differential approach 2. MAKE or BUY (OUTSOURCING DECISION) Mercedes B. must decide whether it must continue to produce an engine component or buy it from Sarao-Philippines for P 2,500 each. The demand for the coming year is 20 units. The costs of producing a single unit of the engine component are as follows: Direct materials P 1,300 Direct labor 700 Factory Overhead (80% fixed) 1,000 P 3,000 If Mercedes B. buys the components, the facility now used to make the components can be rented out to another firm for P 16,000. REQUIRED: A) Should Mercedes B. make or buy the components? B) How much is the maximum amount that Mercedes B. is willing to pay an outside supplier for the engine component? 3. ACCEPT or REJECT (SPECIAL ORDER DECISION) Antonia Company produces and sells toy balls. Each toy ball sells for P 50 and the company sells approximately 500,000 toy balls each year. Unit cost data for 2021 are given below: Fixed Variable Fixed Variable Direct Material P 12 Factory Overhead P 8 P 4 Direct Labor 10 Distribution Costs Antonia has received an offer from a foreign buyer to purchase 20,000 toy balls at P 40. Domestic sales will not be affected by this transaction. If the offer is accepted, variable distribution costs will increase by P 2 per toy ball for insurance and import duties. The company has idle capacity to accept the offer. REQUIRED: A) What is the relevant unit cost of the special order? B) Should Antonia accept or reject the special order? SPECIAL ORDER PRICING Conrada sells "Power V" at a unit price of P 28,000, with the following unit production costs: Direct materials P 8,000 Direct labor 6,000 Variable overhead 4,000 Fixed overhead 2,000 A special order for 1,000 units was received from Gorgonia, a well-known Power V distributor based in Tondo. Additional shipping costs for this sale are P 2,000 per unit. REQUIRED: What is the minimum selling price per unit for the special order if: A) Conrada is operating at FULL capacity? B) Conrada has EXCESS capacity? 5. CONTINUE or SHUTDOWN (SHUTTING DOWN OPERATIONS) The mnet rarant income statement for Chart-I In Charge it nivan halour EG 4G 1 1 : 1 9:45 + 4G1 91 Activity 5_Rel... . . . 5. CONTINUE or SHUTDOWN (SHUTTING DOWN OPERATIONS) The most recent income statement for Start-Up Stores is given below: Dal Mi Branch Do San Branch Total Sales P 1,200,000 P 800,000 P 2,000,000 Less: Variable expenses (840,000) (360,000) (1.200.000) Contribution margin P 360,000 P 440,000 P 800,000 Less: Traceable fixed expenses (210.000) (180.000) (390.000) Segment margin P 150,000 P 260,000 P 410,000 Less: Common fixed expenses (180.000) (120.000) (300.000) Profit (loss) (P 30,000) P 140,000 P 110,000 if Dal Mi Branch were eliminated, then its traceable fixed expenses could be avoided. The total common fixed expenses are merely allocated and would be unaffected. A) What will be the new company profit (loss) if Dal Mi Branch is eliminated? B) What will be the decrease in company profit if Dal Mi Branch is closed and 20% of its traceable fixed expense would remain unchanged while Do San's sales would decrease by 20%? 2/2 E