Laboratory Exercise Number 5 deals with capital budgeting, risk and rates of return, and capital structure and long-term financing decision.

Objective/s:

At the end of this activity, the students are expected to have been able to:

• Prepare a statement showing the contribution margin, contribution to indirect expenses for each segment, and the total income
• Compute the return on investment
• Relate and apply concepts about capital budgeting, risk and rates of return, and capital structure and long-term financin

Procedure:

1. The test is divided into three parts.
2. Read and understand the instruction for each part.

Questions: (to be answered within the video)

Electown manufactures circuit boards for computer-controlled appliances for the home. The sales have been very volatile, sometimes stressing the plant's capacity, and sometimes depressingly slow. During a recent slow period, Jake Ramos, a production supervisor, complained to Grace Sagun, accounting manager, about the flexible budget.

"I try as hard as I can to meet the budget," he says, "and then I find out that just meeting the budget's not good enough. Last month, when we sold 8,000 units, I was Php 10,000 under my budget, and then you all blow me out of the water with your report that I actually was Php 5,000 over, because sales were slow. I thought this responsibility accounting business was supposed to mean we are held accountable just for things we can control. How do we control sales? At the beginning of the year, you gave us all targets. Mine says that for an average month of 10,000 unit sales, I should spend about Php 82,000. I spend less, and get an unfavorable budget report. What gives?"

Required:

Write a short memo to respond to Mr. Ramos.