Total and Incremental... approach.

Problem:

Costs University University Types of Per Semester A B Costs Tuition, matriculation & mis- cellaneous expenses to be paid to the university P20,000 P15,000 Differential by P5,000 Books and supplies 3,000 3,000 Unavoidable Transportation expense 6,250 7,500 Differential by P1,250 Board & lodging with family 21,000 21,000 Sunk cost Miscellaneous expenses 5,000 3,000 Differential by P2,000 Totals P55,250 P49,500 Total costs choosing University A (See schedule above) P55,250 Less: Total costs choosing University B (Schedule above) 49,500 Net advantage of choosing University B P5,750University A University B Tuition, matriculation & miscel- laneous expenses paid to university P20,000 P15,000 Transportation expense 6,250 7,500 Miscellaneous expenses 5,000 3,000 Totals P31,250 P25,500 Net advantage of choosing University B (P31,250-P25,500) P5,750The B Company produces a part that is used in the final assembly of its main product. Two manufacturing operations are required to produce the part. Typical annual production of the part is 400,000 units. The estimated current costs are as follows: Operation1 Operation 2 Materials P240,000 Direct labor 180,000 P180,000 Variable overhead 100,000 100,000 Fixed overhead (allocated) 120,000 60,000 Operation 1 can be eliminated if these parts are purchased from an outside vendor. The vendor will supply 400,000 units a year at P2.00 per unit. These parts would still have to be processed through Operation 2. The B Company would have to pay freight charges of P20,000 a year on the purchased parts. If Operation 1 is eliminated, the space can be rented for P25,000 per year. REQUIRED: 1. Should the company purchase the parts or continue making them internally? Use the total approach first. Then use the incremental analysis next