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PROBLEM # 6 SHUTDOWN OR CONTINUE OPERATION PROBLEM The Homer Company is in the fish canning industry. Its regular monthly production from January to October averages 100 tons of tuna fish that will produce 1,000,000 cans of canned tuna that can be sold at P10 per can in the market. Its annual fixed costs amounts to P18,000,000 which are evenly allocated on a twelve month period. During the months of November and December, the supply of tuna fish goes down to an average of 20 tons monthly or 200,000 cans of canned tuna monthly. Management is considering to shutdown operations during the months of November and December on the belief that the company will be saved from greater losses during these months. If management decides to shutdown operations, additional costs of P50,000 monthly will be incurred for security and insurance of the plant. The company will also spend additional P60,000 in restarting operations in January. The following data are gathered from the records of Homer Company: Raw Materials and Ingredients P5.20 Direct labor .55 Variable overhead .25 Total variable cost per can P6.00 Variable selling and administrative expenses averages P.10 per can. It is assumed that the market can absorb all canned tuna produced. Shutdown operations will reduce fixed costs during November and December by 40%. REQUIRED: 1. Compute the shutdown costs. 2. Determine the shutdown point. 3. Evaluate the result of continue operations and compare with shutdown of operations. PROBLEM # 7 PRODUCT MIX -SCARCE RECOURCES PROBLEM XYZ Company manufactures and sells three lines of product with contribution margins per unit as follows: Product A = P12; Product B = P2; Product C = P5. Each unit of product requires production time as follows: Product A = 3 hours; Product B = 10 minutes; Product C = 2 hours. The company has plant capacity of 20,000 machine hours a month. The market can absorb 2,000 units of Product A, 24,000 units of Product B and 15,000 units of Product C. REQUIRED: 1. What is the most profitable product line on the basis of contribution margin per machine hour.? 2. Compute the maximum contribution margin for the month that will meet the condition stated