1. If a firms net income (profits before taxes) is PhP. 120,000 and it has total assets of PhP. 1.5 million, what is its return on assets? (5 points)

2. If a firm is able to sustain the same level of operations in terms of sales and administrative expenses but reduces its materials cost by PhP. 50,000 through smarter purchases, what is the profit-leverage effect on gross profits? What is the profit-leverage effect on profits before taxes? (5 pts.)
3. A retailer in Las Vegas has an ending inventory of $250,000 as of December 31, 2019, and the following accounting information.

MONTH	ENDING INVENTORY (PhP)	COST OF GOODS SOLD
JANUARY	225,000	1,200,000
FEBRUARY	325,000	1,250,000
MARCH	240,000	1,350,000
APRIL	325,000	1,500,000
MAY	460,000	950,000
JUNE	220,000	850,000
JULY	85,000	1,650,000
AUGUST	156,000	1,325,000
SEPTEMBER	220,000	1,750,000
OCTOBER	265,000	850,000
NOVEMBER	100,000	2,200,000
DECEMBER	350,000	3,500,000

1. Compute the monthly inventory turnover ratio for each of the twelve months. (12 pts.)
2. What are the annual cost of goods sold and the average inventory for the year? (6 pts.)
3. Compute the annual inventory turnover ratio. How is the retailers performance compare to the industry standard, assuming its business is similar to Walmarts? (12 pts.)

4. You are given the following information: (15 pts.)

COST	MAKE OPTION	BUY OPTION
Fixed Cost	25,000	3,000
Variable Cost	8	12

1. Find the break-even quantity and the total cost at the break-even point.
2. If the requirement is 4,500 units, is it more cost-effective for the firm to buy or make the components? What is the cost savings for choosing the cheaper option?
3. If the requirement is 6,000 units, is it more cost-effective for the firm to buy or make the components? What is the cost savings for choosing the cheaper option?

5. Ms. Jane Kim, purchasing manager of Kuantan ATV, Inc., is negotiating a contract to buy 20,000 units of a common component part from a supplier. Jane has done a preliminary cost analysis on manufacturing the part in-house and concluded that she would need to invest $50,000 in capital equipment and incur a variable cost of $25 per unit to manufacture the part in-house. Assuming the total fixed cost to draft a contract with her supplier is $1,000, what is the maximum purchase price that she should negotiate with her supplier? What other factors should she negotiate with the suppliers? (10 pts.)
6. Given the following information, use total cost analysis to determine which supplier is more cost-effective. Late delivery of raw material results in 60 percent lost sales and 40 percent back orders of finished goods. (35 pts.)

Order lot size 1,000

Requirements (annual forecast) 120,000 units

Weight per engine 22 pounds

Order processing cost $125/order

Inventory carrying rate 20% per year

Cost of working capital 10% per year

Profit margin 15%

Price of finished goods $4,500

Back order cost $15 per unit

UNIT PRICE	SUPPLIER I	SUPPLIER II
1 to 999 units/order	50.00	49.50
1,000 to 2,999 units/order	49.00	48.50
3,000+ units/order	48.00	48.00
Tooling Cost	12,000	10,000
Terms	2/10, net 30	1/10, net 30
Distance	125 miles	100 miles
Supplier Quality Rating	2%	2%
Supplier Delivery Rating	1%	2%

Truckload (TL 40,000 lbs): $0.85 per ton-mile

Less-than-truckload (LTL): $1.10 per ton-mile

Note: per ton-mile = 2,000 lbs per mile, number of days per year = 365