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Cost Analysis for Business Decisions

1. The income of Zena would decrease by P155,000 if Division A were eliminated. 2. The preferable alternative for the company is to buy parts for P276,000, which will give them a margin of P10,000 over renting. 3. The sales mix that will minimize profit is 320,000 brushes for a net profit of P340,000, with 0 combs. 4. Green's income would decrease by P227,000 if the North Territory were eliminated. 5. The company should buy the component from a supplier for P80 each instead of making it, saving P20,000 after eliminating a supervisor position.

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67 views3 pages

Cost Analysis for Business Decisions

1. The income of Zena would decrease by P155,000 if Division A were eliminated. 2. The preferable alternative for the company is to buy parts for P276,000, which will give them a margin of P10,000 over renting. 3. The sales mix that will minimize profit is 320,000 brushes for a net profit of P340,000, with 0 combs. 4. Green's income would decrease by P227,000 if the North Territory were eliminated. 5. The company should buy the component from a supplier for P80 each instead of making it, saving P20,000 after eliminating a supervisor position.

Uploaded by

Peachy
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© © All Rights Reserved
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ASSIGNMENT 3- Midterm

RELEVANT COSTING

1.

Sale P (1,000,000)
Cost of Goods Sold:
Variable P 600,000
Fixed 120,000 720,000
Selling Expense 100,000
Administrative Expense 25,000
INCOME P (155,000)

The income of Zena would decrease by P 155,000 if the Division A were eliminated.

2.

Purchase price from Dreamland


(P 23 X 12,000 parts) P (276,000)
Rent Revenue Received 70,000
Variable cost avoided
(P 15 x 12,000 parts) 180,000
Fixed Overhead avoided
(P 6 x 50% x 12,000 parts) 36,000
DIFFERENCE in favor of Buying P 10,000

The preferable alternative that the company should consider is to buy and will give
them a margin of P 10,000.
3.

Brushes Combs
Units of output per machine 8 20
hour
Selling price per unit P 12.00 P 4.00
Variable cost (3.50) (1.35)
Contribution Margin P 8.50 P 2.65
Contribution Margin per (8.50/8) (2.65/20)
machine hour P 1.0625 P 0.1325

Sales of brushes 40,000 machine hours x 8 units


320,000 brushes
Sales of combs 0

The sales mix that will minimize the profit is 320,000 for brushes and 0 to the combs
since this combination provide a net profit of P 340,000.

4.

Sales foregone in North P (980,000)


Variable cost avoided 340,000
Fixed cost avoided 410,000
Decrease in income from eliminating North P (227,000)
Territory

The Green’s income would decrease by P 227,000 if the North Territory is eliminated.

5.

A. Determine the maximum amount per unit Kropeck Industries could pay an outside
supplier.

Direct Material P 15.00


Direct Labor 40.00
Variable Manufacturing Overhead 10
Opportunity Cost (P 50,000/4.000 units)
12.50
COST TO MAKE P 77.50
B. Indicate if the company should make or buy the component and the total peso
difference in favor of that alternative.

Cost to Buy (P 80 x 4,000) P 320,000


Cost to Make (P 77.5 x 4,000) 310,000
DIFFERENCE P 10,000

The company should make the component because they can save P 10,000 by
making the component instead of buying.

C. Assume the company could eliminate one production supervisor with a salary of P
30,000 if the component is purchased from an outside supplier. Indicate if the company
should make or buy the component and the total peso difference in favor of that
alternative.

Incremental Manufacturing P 72.50


P 65 + (P 30,000/4,000)
Opportunity Cost 12.50
(P 50,000/4,000 units)
COST TO MAKE P 85.00

Cost to Make (P 85 x 4,000) P 340,000


Cost to Buy (P 80 x 4,000) 320,000
DIFFERENCE P 20,000

The company should buy component because it will save them P 20,000 rather
than to make component.

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