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PROBLEM # 4 SCRAP OR REWORK PROBLEM The Oslec Company has 5,000 obsolete truck parts that are carried iin their inventory at a cost of P50,000. The company is faced with a decision whether to scrap the parts or modify them. If the parts were junked, it would realize only 10% of its cost. Should the company modify the parts, it will spent P10,000 for materials, P3,000 for direct labor, and overhead equal to 40% of direct labor. The new parts will sell for P25,000 in the market. REQUIRED: Should Oslec company modify or scrap the parts? Determine the relevant and differential costs. PROBLEM # 5 ELIMINATE OR CONTINUE A PRODUCT LINE PROBLEM The following data were taken from the Matt Company. Based on these data, the management of the Matt is considering eliminating product line B. They assumed that by operating only product A and C, the company would have higher profits. PROD A PROD B PROD C Sales P100,000 P200,000 P300,000 Cost of sales: Materials P 25,000 P 80,000 P 75,000 Labor 20,000 50,000 40,000 Variable overhead 10,000 15,000 20,000 Fixed Overhead 5,000 35,000 15,000 Total P 60,000 P180,000 P150,000 Gross Margin P 40,000 P 20,000 P150,000 Selling and Administrative: Variable P 12,000 P 10,000 P 30,000 Fixed 8,000 30,000 40,000 Total P 20,000 P 40,000 P 70,000 Net Income (Loss) P 20,000 P(20,000) P 80,000 It was determined that if product line B is discontinued, 60% of the fixed overhead can be avoided and 50% of fixed selling and administrative expenses can also be avoided. REQUIRED: Based on the above data, should product line B eliminated? Present our solution