You are planning too sell your electronic manufacturing plant originally

costing P250,000 when it was put up 15 years ago. Some equipment

originally costing P10000 was replaced 10 years ago with new equipment
costing P15,000. The equipment installed 10 years ago has now depreciated
by P7500. The depreciation of the remaining portion of the plant originally
installed 15 years ago is now P40,000. Determine the present book value of
your plant.
A broadcasting corporation purchasedequipment worth P53000 and paid
P1500 for freight and delivery charges to the site. The equipment has a
normal life of 10 years with the trade-in value of P5000 against the purchase
of new equipment at the end of life
a.)Determine the annual depreciation cost by the straight-line method.
b.)Determine the annual depreciation cost by the sinking fund method.
Assume interest 6% compounded anually.

A machine which cost P10,000 was sold as a scrap after being used for 10
years. If the scrap value was P500, Determine the total depreciation at the
end of the fifth year.

The cost of a certain asset is P3,000 , its life is 6 years and scrap value is
P500. Find the annual rate of interest of depreciation under constant
percentage method, and construct a depreciation table

A telephone company purchased a microwave radio equipment for

P6,000,000. Freight and installation charges amounted to 3% of the
purchased price. If the equipment is depreciated over an eight-year period
with salvage value of 5% , deteermine thhe following :
a.)Annual depreciation charges using the straight-line methood .
b.) Depreciation charges during the fifth year using the SYD method

A dump truck was bought for P30,000 six years ago . It has a salvage value of
P3,000 four years from now . It was sold now for P8,000 . What is the sunk
cost if the depreciation method is used is :
a.)Straight-Line method

b.)Sinking fund method at 6%?

A television company purchased machinery for P100,000 on 1979. It is

estimated that it will have a useful life of blank years , scrap value of
P4,000 ,production of P400,000 unite working hours of 120,000. The company
uses the machine for 14,000 hours in 1979 and 10,000 hours in 1980 . The
machine produces 36,000 in 1979 and 44,000 units in 1980. Computed the
depreciation for 1980 using each method give :
a.)Straight-Line method
b.)Working hours
c.)Output method

On January 1 ,1978 the purchasing manager of a cement was bought a new

machine costing P140,000 . Depreciation has computed by the straight-line
method , based on an estimated useful life of 5 years and residual scrap
value of P12,000
On January 2, 1981 extraordinary repairs(almost equivalent to a
rebuilding of the machinery) were performed cost of P30,400. Because of the
thorough going nature of these repairs, the normal life of the machinery was
EXT materially, revised estimate of useful life was 4 years from 1981.
Determine the annual provision for depreciation for years 1978 to 1980 and
the adjusted provision for depreciation on December 31, 1981. Assume
payment in cash for the maintenancce and repairs.

A machine shop purchased 10 eyars ago a milling machine P60,000 . A

traight line depreciation reserve has been dicided based on 20 eyar life of the
macchine . The owner of the machine shop desires to replace the old milling
machine with a modern unit having many advantages costing P100,000. It
can sell the old unit for P20,000 . How much new capital will be required for
the purchase?

A tax and duty free importation of 30-horsepower sandmill for paint

manufacturing costs P360,000. Bank charges, arrastre and brokeage costs
P5,000. Foundation and installation costs were p25,000. Other incidental
expenses amount to P20,000. Salvage value of the mill is expected to be

P60,000 after 20 years. Find the appraisal value of the mill using straight-line
method at the end of a.) 10 years , b.)15 years.

Atrenching machine may be used to dig irrigation ditches or pipeline

trenches. A contractor purchases one for P400,000 and he estimates that it
will be able to receive P5,000 as a scrap value when he sells it . During a
certain year he used the machine to dig 90,000 meters oof trench. Determine
the depreciation cost for that year.

A mining company investedP25,000,000 to developan oil well which is

estimated to contain 1,000,000 barrels of oil. During a certain year, 200,000
barrels were produced from this well. Compute the depletion charge during
the year.

The total gross income of the oil company in Problem P7-12 from the 200,000
barrels of oil produced is P30,000,000. The taxable income after deducting all
expenses excluding depletion is P11,800,000. Determine the allowable
depletion allowance for the year.

During a certain month, a mining company has a gross income of P6,500,000

from the production of gold. The expenses for this month excluding depletion
is P4,200,000. If the fixed depletion rate for the gold is 15%, what is the
depletion alowance for this month ?

A coal minign company has owned a mine for the past five years . During this
time the following tonnage of ore has been removed each year: 25,000 ;
32,000; 36,000; 30,000; and 28,000 tons. The mine is estimated to contain a
total of 500,000 tons of coal. The initial cost of the mine is P12,000,000. If the
company had a gross income for this coal of P220 per ton for the first two
years, and P300 tper tons for the last three years, a.)determine the depletion
charge for each year using the larger values for the two methods and b.)
compute the percent of the initial cost that has been written off in the five
years.

The Carryall Trucking Company uses three delivery truks that cost P100,000;
P120,000; and P150,000. The estimated salvage values are P20,000;

P25,000; and P35,000. All truckshave an expecteed service life of 10 years.

Determine group dpreciation rate and annual depreciation.
Solve Example 7-10 using the same data. However, calculate the actual
annual depreciation by assuming that the company uses a service life of 8
years for all models and one-half of the salvage values.
A dept of P10,000 with interest at the rate of 8%, payable semi-annually, is to
be amortized by equal payments at the end of each 6 months for 4 years.
FInd the semi-annual payment and construct an amortization schedule.

Construct the amortization schedule for a dept of P10,000 with interest at the
rate of 19%, payable semi-annually, which is paid for, principal and interest
included, by payments of P2,000 at the end of each 6 months for as long as
necessary.

A man borrowed P10,000 from a bank for home improvement, to be repaid by

a month-end payments for 12 months. The current rate of the interest
charged by banks is 19% coumpunded monthly. Based on this rate, prepare
an amortization schedule.

A corporation floats P200,000 worth of ten-year callable bonds in P1,000

dnomination. The bond rate is 7% compunded anually. Prepare an
ammortization schedule.

You urchased a P5,000 bond for P5,100. The bond pays P200 per year. It is
redeemable for P5,050 after 10 eyars. What is the net rate of interest on your
investment?

A client on the general services rate of an Electric Cooperative Power

Company uses 3,438 kw-hr in one month and has a connected load of 7.6kw
for lighting, 4.2 kw for power, 8.3 kw for appliances, 3.2 kw for residential
load and 6.6 kw miscellaneous load. If his load is 65%, calculate the energy
nill for the month.
RATE SCHEDULE
General Services :

X-1

Connected Load - 1 to 5,000 watts inclusive

First 12 kw-hr

P2.00

Next 78kw-hr
Excess kw-hr
X-MD

P0.16/kw-hr
P0.35/kw-hr

Connected Load over 5,000 watts.

Demand charge for each kw billing demand --P12.60

Energy Charges :
First 100 hours, use billing demand at P0.30/kw-hr
Next 100 hours, use billing demand atP0.25/kw-hr
Excess kw-hr at P0.20/kw-hr

A company that uses an average of 20,000 kw-hr of energy per month

purchased under the rate schedule below was goign to purchase a spot
welder that would consume 2,000 kw-hr per month. The existing maximum
demand was 55 kilowatts. The ABC machine which costs P4,500 would
increase the maimum demand by 15 kilowatts, The XYZ machine costing
P6,,000 would increase the demand by only 5 kilowatts. The welder selected
would have to be written off over a 5-year period using a profit rate of 8%.
Taxes and insurance on either machine would be 2% of first cost per year and
other costs were estimated to be the same for either welder. Determine the
best alternative using the annual cost method.
Service charge per month

P1.60

Energy charge ( to be added to the service charge)

First 1000 kw-hr per month

P.0.027/kw-hr

Next 2000 kw-hr per month

P0.023/kw-hr

Next 5000 kw-hr per month

P0.019/kw-hr

For all excess over 8,000 kw-hr per month

First 50 of maximum demand.

P0.017/kw-hr

Next 150 per kw of maximum

demand but no more than 85,000 kw-hr

P0.012/kw-hr

All excess

P0.007/kw-hr

A water system is to be built to srve a newly developed subdivision. This

subdivision will use 300,000,000 liters of water every year. The facilities to be
installed will cost P1,500,000 and it is estimated that operation and
maintenance of the system will cost P70,000 annually. Operating taxes will be
P24,000 per year and income taes will be 25% of the first P100,000 net
revenue and 35% of the net revenue over P100,000. The life of the system
properties is 80 years and 5% sinking fund is to be established for
depreciation . At what rate per cu.m. must the water be sold to return an
annual net profit of 8% after income taxes on the original investment ?

A company warehouse has no automatic sprinkler system. Annual fire

insurance premiums have benn P1,200 . If the sprinkler system costing
P8,000 is installed, the insurance premiums will be reduced by 50%. The
system is estimated to have a life of 30 years, with the annual cost of taxes
and maintenance amounting to P75. Capital is worth 8*%. The company
engineers estimates the actual loss from any fire, including such factors as
lost orders and personnel required to makerepairs would be at least 50%
greater than the physical loss covered by insurance. It is assumed that the
reduction iin insurance premiums is a good measure of the difference in the
probable physical loss without and with a sprinkler system. From a long range
view-point , determine whether the sprinkler system is a good investment.

A P1,000 6% bond pays dividens semi-annually and will be redeemed at

110% on July 1,1975. It is bought on July 1, 1972 to yield (4%, m = 2 ). Find
the price when it was bought.

A P10,000 debt in the form of P100 bonds, bears 4% interest payable

annually. Construct an amortization schedule for ths issue by ten annual
payments as nearly equal as possible

A P1,000 bond which will mature in 10 years and with a bond rate of 8%
payable annually is to be redeemed at a par at thee end of this period. It is
sold for P1,030. Determine the yild at this price.

A man was offered a Land Bankcertificate with a face value of P100,000

which bears interest of 8% per year payable semi-annually and due in 6
eyars. If the man wants to earn6% semi-annually, how much musst he pay for
thee certificate?

DEPRECIATION AND DEPLETION

A food manufacturing plant has a waste product that has now being dumped
into a river. The industrial waste material could be processed fertilizer or a
remixed waste to digest the organic materials to produce methane, carbon
dioxide and bacterial cells. This would require the investment of P32,000 in
equipment and P5,300 a month for other materials. Labor could cost P1,400
per month. Overhead epenses will cost P5,600 a year. Taxes and insurance
amount to 3% of the first cost of the equipment per year . Payroll and other
benefits amount to 4% of the first cost. The life of the equipment is 5 years
with no salvage value at the end of its life. Money is worth 20% to the
company. If 3,000 kilograms of fertilizers are produced each month which can
be sold for P2.20 per kilograms, should the firm make the investment ?

The ABC Company manufactures Part No. 1001 for use in its tracktor
assembly operation . The cost per unit for 5,000 units of this part is total of
P26,000 for the following:
Direct materials

P2.00

Direct Labor

P12.00

Fixed factory overhead

Variable factory overhead

P7.00
P5.00

The LMR company offered to sell to ABC company 5,000 units of the same
part for P27.00 each . If the ABC Company accepts, some of its facilities
presently used to manufacture this part could be used to help with the
manufacture of the same part, thus saving P40,000 in relevant cossts in its
manufacturing and eliminate P3.00 per unit of the fixed factory overhead
applied to this part.
Prepare a make or buy decision analysis showing the savings, if any,from
buying instead of making.

A young mechanical engineer is considerin establishing his own small

company. An investment of P100,00 will be required which must be recovered
in 15 yars. It is estimated that sales will be P150,000 per year and that
operating epenses will be ;
Materials

P40,000 per year

Labor

70,000 per year

Overhead

P10,000=10% of sales per year

Selling expenses

5,000 per year

The engineer will give up in his regular job paying P15,000 per year
and devote full time to his business. This will result in decreasing labor cost
by P10,000 per year, materials cost by P7,000 per year, aand overhead by
P8,000 per year. If the engineer expects to earn at least 20% on his capital,
should he invest.

A plastic manufacturing company is intending to expand its product facilities

starting in 1988. The program requires the following estimated expendtures ;
P1,000,000 at the end of 1988
P1,200,000 at the end if 1980
P1,500,000 at the end if 1993
To accumulate the reequired funds, it established a sinking fund constituting
of 15 uniform annual deposits, the first deposit having been made at the end
of 1979. The interest of the fund is 6% per anum.
a.)Calculate the annual deposit.
b.)What will be the balance in the fund on January 1, 1990

An ice plant owner decided to install a water pump from a near by clean
fresh water sourse to supply its water requirements. The capacity of the
pump is 45.5 cu.m. per hour against a ehad of 43 meters with an efficiency of
70% at full load and 40% at half load. The total cost of the pumping unit
including the piping system to the plant is P700,000 with zero sallvage value
at the end of its estimated life of 20 eyars. The prime mover of the pump is
an electric motor and cost of the power is P2.10 per kw-hr. Taxes, insurance

and maintenance cost is P1.5% of the first cost per year. The pump will
operate 200 days continuous operation per year at half loaf and 150 days at
full load. If the cost of the money is 12%, how much will it cost the owner to
operate the ump per cubic meter ?

A mechanical engineer is faced with the prospect of the fluctuating future

budget due to the country's economic condition for the maintenance of a
particular machine. During each of the next 5 eyars P1,000 per year will be
budgeted. During the next 5 years the annual budget will be P1,500 each
year. In addition , P3,500 will be spent for the overhaul of the machine at the
end of the 4th year, and another P3,500 for the overhaul at the end of the 8th
year. The mechanical engineer wonders what uniform annual ependiture
would be equivalent to these fluctuating amounts assuming interest is 6% per
annum. Compute the equivalent uniform annual expenditure for the 10-year
period.

A food processing plant consume 600,000 kw-hr of electrical energy annually

and pays an average of P2.00 per kw-hr. A study is being made to generate
its own power to supply the plant the energy required. The power plant
installed costs P2,000,000 annual operation and maintenance, P800,000;
other expenses, P100,000 per year. The life of the plant is 15 years salvage
value at the end of life is P200,000 ; annual taxes and insurance 6% of first
cost, and the rate of interest is 15%. Using the sinking fund method for
depreciation, determine if the power plant is justifiable.

A fixed capital investment of P10,000 is required for a proposed

manufacturing plant and an estimated working capital of P2,000,000.
Annualdepreciation is estimated to be 10% of the fixed capital investment.
Determine the rate of return on thee total investment and the minimum
payout period if the annual profit is P2,500,000.

A firm is considering purchasing equipment that will reduce annual costs by

P40,000. The equipment costs P300,000 and has a salvage value of P50,000
and a life of 7 years. The annual maintenance cost is P6,000. While not in use
by the firm , the equipment can be rented to the others to generate an
income of P10,000 per year. If the money can invested for an 8% return, is
the firm justified in buying the equipment?

------------------------------------------------------------------------------------------------------------------

Two project studies for the construction of an engineering building are under
consideration. On one study the cost of the building is P650,000 with a life of
20 years and a salvage value of P40,000. Yearly maintenance and repair is
P1,800. The other proposes a first cost of P720,000, life of 30 years and a
salvage value of P60,000. Yearly maintenance and repairs is P2,000. If the
yield on the investment is 6%, determine which project study is acceptable.

Superior Air Products Co., Inc. will install an induction motor costing P40,000
whith an efficiency of 88% and a power factor of 75% or asynchronous motor
costing P48,000 having an efficiency of 87% and a power factor of 98%. The
power output of each motor will be 15,000 kw-hr per month. Power costs
P0.30 per kw-hr prior to the application of any bonus or penalty for power.
The panay Electric Co. provididing current will reduce its bill according to the
following clause : if the power factor exceeds 80% the bill will be reduced by
0.4% for each 1% such excessup to 90% power factor , and by 0.3% for each
1% excess from 91% to 100% power factor . No bonus or penalty will be
given for any power factor between 70% and 79%. Compare the moonthly
power bills for the two motors and ive your recommendations.

Make an economic analysis to determine which of thee following two

machines capable of performing the same task in a given amount of time
should be purchased. The minimum attractive rate of return is 8%.
Machine A
First cost

Machine B

P10,000

P20,000

Annual maintenance

P250

P300

Salvage value

P6,000

Estimated life

6 years

14 years

Basing on annual cost and using the straight line with an average interest
method, determine machine you would choose.

A cold storage plant desires to determine whether to use insulation 2 inches

thick or 3 inches thick in insulating the walls of the cold storage warehouse.
Heat absorbed thrugh the wall without insulation would cost P96,00 per sq.m.
A 2-inch insulation will cost P30.40 per sq.m. and will cut out 89% of the loss.
A 3-inch insulation will cut out 92% of the loss and will cost P65.60 per sq.m
Using a life of 15 years for the insulation with no salvage value and a
minimum attractivereturn of 8%, what thickness of insulation should be used?
Use annual cost method.

The City of Zamboanga contemplates to increase the capacity of its existing

water transmission line . Two plants are under consideration. Plant A requires
the construction of a parallel pipe line, the flow being maintained by gravity.
The initial cost is P2,750,000 and the life is 40 years, with an annual
operatingcost of P50,000
Plan B requires the construction of a booster pumping station costing
P1,050,000 with a life of 40 years. The pumping equipment costs and
additional amount of P250,000. It has a life of 20 years and a salvage value of
P25,000. The annua operating cost is P165,000.
Which is the more economical plan if interest rate is 12%?

The Alpha Machinery Co. has been shipping it product(moderately heavy

machines) mounted only on skids without complete crating. To avoid crating,
it must ship in freight cars which contain only the machines. to do this, it
must pay freight on a car capacity load of 42 tons, regardless of whether or
not the car is completely full. In the past is actually has shipped only 30 tons
in each car. The car load freight rate is P3.10 per hundred kilograms.
If the machines are crated so that they can be shipped in mixed car lots along
with other merchandise, they can be shipped at a rate of P3.30 per hundred
kilograms with the freight bill computed on actual weight shipped. The cost of
the crating would be P8.00 and would increase the shipping weight from 545
to 555 kilograms per machine. Which procedure should be followe? ( One ton
= 1,000 kilograms )

A number of Dendro-Thermal Plants are being construucted in the Philippines.

One of the problem areas is the transporting of cut wood from the ipil-ipil
plantation to the Dendro- Thermal Plant. Two possible alternatives to
accomplish this operation are by trucks and by cable transport system.
The operation requires 8 to 10 hours per day, 365 days a year. Average
weight of cut woo to be transported per day is 100 tons.
A trucking company offered their their services at an average cost of P35.oo
per ton to haul the cut wood from the pplantation to the plant. If the plant
owner will installa cable transit system, the following expenses will be
incurred:
1.
First cost of the cable transit system equipment including installation =
P2,500,000
2.

Estimated annual maintenance cost = P70,000.

3.
Labor cost to operate the system 8 tp 10 hours a day, 365 days a year
=P75,000.
4.
Overhead expenses and other miscellaneous ependitures per ear =
P80,000
5.

Rate of interest on investment = 16%

Which of the two alternatives would you recommend? The economic

life of the truck is 10 years.

An industrial firm received an offer for suupply of two electric motors which
are being considered o power an industrial trial hoist. Each motor is capable
of providing 100hp. Other pertinent data for each motor are as follows :
Motor A
Investment

P25,000

Efficiency

84%

Maintenance per year

Life

Motor B
P32,000
88%

P400
10 years

P600
10 years

Money is worth 20%. If the expected usage of the hoist is 700 hours per year,

what should be the cost of electric power before Motor A is favored over
Motor B ?

An oil company is being offered a special coating for the gasoline

underground tanks it is installing in its service stations which will increase the
life of the tank from 10 to 15 years. The cost of the speccial coating will
increase the cost of the tank from P40,000 to 58,000. The cost of installation
is P24,000. The salvage value is zero, and the interest rate is 26%. Would you
recommend the use of the special coating ?

The engineer of a medium scale industry was instructed to prepare two

plants to be considered by management to improve their operations. Plan A
calls for an initial investment of P200,000now with an expecteed salvage
value off 20% of the first cost 20 eyars hence. The operation and
maintenance disbursement are estimated to be P15,000 each year and taxes
will be 2% of first cost. Plab B calls for an immediate investment of P140,000
and a second investment of P160,000 eight years later. The operation and
maintenance disbursement will be P9,000 a year for the initial installation
and P8,000 a year for the second installation . At the end of 20 years, the
salvage value will be 20% of investments . Taxes will be 2% of rist cost. If
miney is worth 12%, which plan will you recommend ?

The MGCCompany has a contract with a hauler to transport its naptha

requirements of 3,600,000 liters per year from a refiniery in Batangas to its
site ni Pico, Manila at a total cost of P0.21 per liter. It is proposed that the
company buy a tanker with a capacity of 18,000 liters to a service its
requirements at a first cost of P800,000, life is 6 years and a salvage value of
P20,000 . Other expenses are as follows :
a.) Diesel fuel at P5.00 per liter and the tanker consumes 120 liters per round
trip from batangas to paco and back.
b.)Lubricating oil and servicing is P800 per month
c.)Labor including overtime and fringe benefits for one drover and one helper
is P7,000 per month.
d.) Anuual taxes and insurance is 5% of the first cost.
e.) General maintenance per year is P20,000
f.) Tire costs P21,000 per set and will be renewd every 150 round trips.

What should the MGC Company do if a 15% interest rate on investment

is included in the analysis?

The Asset Privatization Trust put up for sale a machine manufacturing plant.
There were two bidders with the following proposals:
1.)Bidder A offered P10,000,000 payable with 20% down payment , the
balance payable P1,000,000 annually for 8 years.
2.) Bidder B offered P9,000,000 payable P2,000,000 down payment, the
balance payable P500,000 semi-annually for 7 years.
Which bid is more favorable to the Asset PrivatizationTrust if money is worth
10% effective?

A paint manufacturing company uses a sand mill for fine grinding of paint
with an output of 100 liters per hour using glass beads as grinding meadia.
Media load in the mill is 25 kilograms costing P200 per kilogram and is ffully
replenished in 2 months time at 8 hours per day operation, 25 days per
month. A ceramics grinding media is offered to the company costing P400 per
kilogram and needs 30 kilograms in the sand mill, but guarantees an output
of 120 liters per hour and full replenishmen of media in 3 months. If the profit
on paint production is P1.50 per liter, would you recommend the change in
media?

An untreated electric wooden pole that will last 10 years under a certain soil
condition cost P1,200. If a treated pole will last for 20 years, what is the
maximum amount that can be paid for the treated pole if the maximum
return of the investment is 12%? Consider annual taxes and insurance to be
1% of the first cost

An electric cooperative is considerig the use of a concrete electric pole in the

expansion of its power distribution system. A concrete pole cots P18,000 each

and will last 20 years. The company is rpesently using creosoted wooden
poles which costs P12,000 each and will last 10 years. If the money is worth
12%, which pole should be used? Assume annual taxes ammount to 1% of
the first cost and zero salvage value ine ach case.

A company is ocnsidering the purchase of a generating set to suppy the

electrical needs of its office during brownouts.
The first offer it received is for a gasoline engine driven unit with an
estimated life span of 5 years and would cost the company P52,000. The
annual maintenance cost is estimated to be P8,300 , annual operation cost
would be P27,000 and salvage value would be P7,200.
The second offer the company received is for Diesel engine driven unit
with an estimated life span of 10 eyars annual maintenance cost of P5,800,
operating eyarly cost of P18,800 and salvage value of P11,900. The price
offered for the unit is p98,250.
If the company would need the services of a generator for 10 years,
which of the two offers would be better for the company if the money is worth
20%? Compute on annual cost basis.

A newly formed company plans to build a factory building containing 3,000

sq.m. A wood frame building with aliminum roofing and sidinggs can be built
at a cost of P400 per sq.m. It is expected to alst 10 years with an average
maintenance expense of P3,000. The insurance rate on such a building is
1.5% of the first cost per year.
Another alternative is to build a structure with a steel roof trusses
having asbestos sheet roofing with hollow block siding. Such a building would
ccost P600 per sq.m. This building is expected to last 20 years with
averagemaintenance expenses of P2,000. Insurance on such a building would
be 1% of first cost.
Assume a salvage value of 5% of the first cost in each case. Annual
taxes on each structure are 1.5% of first cost. If capital is available and is
worth not less than 12%, which structure would you recommend ?

A machine part is a chemical plant is subjected to corrosion and rust due to

chemicall fumes. It coosts installed P2,300 an last 5 years. If the part is
treated for protection against corrosion and rust it will cost P3,000 installed. If
money is worth 12%, how long must the treated part last to justify the
treatment ?

A machine that costs P5,000 will last 20 years and have a scrap value at the
time of P500. Repairs will average P300 a year. Operating expenses, including
the wage of the operator will be P400 a month. A second machine will
produce twice as many unitsper year. It costs P50,000 and must be replaced
at the end of 25 years at a cost of P45,000. Repairs for the machine will be
average P250 per year, and operating expenses will be P500 per month. if
oney s worth 5% effective, how much will be saved, if any ,each year by
purchasing the mroe economical machine ?

A manufacturing firm supplies a certain product which s being made on an

engine to a progressive car manufacturing company. A turret lathe is now
available . The data for the two lathes are as follows:
Engine Lathe

Turret Lathe

First cost

P36,000

P48,000

Installation cost

500

800

Salvage value at the end of life

4,000

Trade-in value

12,000

5,000
-------

Product time per piece,minutes

30

20

Labor cost per hour

30

20

Overhead per hour

5.00

4.50

Estimated life in years

Present age,years

10
5

8
0

Taxes and insurance

4%

4%

There are 2,400 working hours each year on the old machine lathe. If money
is worth 10% to the company , should replacement be made now ?

A recapping plant is planning to qcquire a new Diesel engine to replace its

present unit which they run during brownouts. The new set would cost
P135,000 with a 5-years lfie and zero salvagevalue. Variable operating cost
would be P150,000 a year
The present generating set has a book value of P75,000 and a
remaining life of 5 years. Its disposal value now is P7,500 but it would be zero
after 5 years. Variable operating cost would be P187,500 a year. Money is
worth 10%. Which is profitable,to buy the new set or retain the present set?

A decision by the supervising mechaninical engineer must be made whether

to replace a certain engine with anew one or to replace the cylinders of the
old engine and thorouhgly recondition it . The original cost of the engine10
eyars ago was P70,000, to rebore and recondition it now will cost P8,000 , but
would extend its useful life for 5 yyears. A new engine will have a first cost of
P62,000 and will have a estimated life of 10 years. It is expected that the
anual cost for fuel and lubricants witht he reconditioned engine will be about
P20,000 and this cost will be 15% less with the new engine. It is also veleived
that repairs will be 2,500 a eyar less with the new engine has any realizable
value when retired. If money is worth 10% , what would your recommend ?

An old machine may be repaired at a cost of P9,000 or it may be replaced by

a modern machine of the same size at a cost of P57,000. The present net
salvage value of the old machiine is P13,000. The estimated that the rapaired
machine will last 5 more years with a net salvage value of P10,000 and that
of the new machine will be P15,000 after 30 years. The annual cost of
maintenane and operation of the repaired machine will be P1,500 more per
year than for the new machine. Assuming a return of 8% and depreciation on
straight-line basis, determine whether if its more economical to repair the
amchine or replace it .

A plywood manufacturer produces a piece of plywood at a labor cost of P0.50

and material cost of P3.00. The fixed charges of the business are P50,000 a
month and the variable cost is P0.50 a piece. If one piee of plywood sells for
P6.00 , how many pieces must be produced each month for the manufacturer
to break even ?

The direct labor cost and direct material cost of a certain product are P300
and P400 per uit, respectively. Fixed charges are P100,000 per month and
other variable costs are P100 per unit. if the product is sold for p1,200 per
unit , how many units must be produced and sold to break-even ?

A certain firm has the capacity to produce 650,000 units of a certain product
per year. At rpesent ,it is opertaing at 62% capacity. The firm's annual income
is P4,160,000. Annual fixed costis P1,920,000 and the variable costs are
equal to P3.56 per unit.
a.) What is thee annual profit or loss?
n.)At what volume of sales does the firm break even ?

General Electric Comapny which manufactures electric motors has a capacity

of producing 150 motors a month. The variable cost are P4,000 a month.
Fixed cost o the company amount to P78,000 per month, which inludes all
taxes. The average selling price of each motor is P750. Determine the
number of motors to be produced and sold per month to break even and the
sales volume in pesos at this point.

A local factory assembling calculators produces 400 units per month and sells
them at P1,800 each. Dividens are 8% on the 8,000 shares with par value of
P250 each. The fixed operating cost per month is P25,000. Other costs are
P1,000 per unit. Determine the brea-even point. If only 200 units are

produced each month, determine the profit or loss.

In the manufacture of a certain product two processes are available. One will
produce 80 units of the finished product per P100.00 worth of raw materials,
and will cost P0.42 per unit of the finished product per P100.00 worth raw
materials and will cost p0.56 per unit of the finished product. What is the
break-even point in unit value of the finish product below which the low
efficiency process should be used and above which the high efficiency
process should be used?

The following ata are available for the Canlubang Automotive Company which
manufactures and sells a single automotive product line :
Unit selling price

P40.00

Unit variable cost

P20.00

Total fixed costs

P200,000

a.) What is the break-even point in units for the current year?
b.)Pepare a break-even chart for the 1981 operation at intervals of 5,000
units up to 30,000 units.

A small shop in Bulacan fabricates threshers for palay producers in the

locality. The shop can produce each thresher at a labor cost of P1,800. The
cost of materials for each unit is P2,500. The variable costs amount to P650
per unit, while fixed charges incurred per annum total P69,000. If the portable
threshers are sold for P7,800 per unit, how many units must be produced and
sol per annum to break-even?

The Asian Transmission Company makes and sells automotive parts. Present
sales volume is 500,000 untis a year at a selling price of P0.50 per unit. Fixed

expenses total P80,000 per year/

a.) What is the total profir or loss for a year?
b.) What is the break-even point in pesos and in units ?

A shoe maanuacturer producesa pair of shoes at a labor cost of P9.00 a pair

and amterials cost of P8.00 a pair. The fixed charges of the business are
P90,000 a month and the variable cost is P4.00 a pair. If the shoes sells for
P30.00 a pair,how many pairs must be produced each month for the
manufacturer to break even ?

For manufacturing a new product, a company intends to purchase one of two

available machines, thee data for which are as follows :
Machine A
First cost
P21,000

P36,000

Salvage value
Life(years)

6,000
10
P4,200

Number of operators

Wage of one operator/hour

P9.00

P15.00
25

3,500
6

Annual maintenance & operation cost

P2,800

Output(units/hour)

Machine B

15

If the company is to earn a return of 18% oon investment capital. a.)

how many units must be produced for equal costs? b.) If the expected annual
demand for the new product is 6,000 units annually, which machine should
be purchased?

A company has annual fixed cost of P600,000 and a break-even point at 45%
of capacity . The ratio of direct labor costs to direct materials cost is 4:1. At
100% capacity, the labor cost is P960,000 which is 80% of all variable costs.
If labor costs are decreased 15% with materials costs remaining the same, a.)
determine the new break-even point, and b.) What is the ratio of direct labor
to direct materials at full capacity and at the new break-even point?

To purchase a certain product, three manufacturing methods are available,

costs for which are indicated below
Method A
Annual fixed cost
Variable cost per unit

P20,000
4.20

Method B

Method C

P25,000
3.50

P30,000
3.00

For what range of annual production volume is each method preffered?

A plant has a capacity of producing 800,000 units per year foa product which
it sells for P1.50 per unit regardless of output. The annual fixed cost are
P280,000 and a variable cost of P480,000 at 75% capacity. a.) What is the
fixed cost per unit at the break-even point ? b.) What is net profit at 100%
capacity if the company is in the 40% tax bracket?

An asphalt batching plant to produce hot-mix asphaltic concrete may be

purchased for P920,000. Delivery equipment adn other accessories will cost
P450,000. Materials cost for asphalt and aggregates, including operation and
maintenance, are calculated to be P18.75 per tonof asphaltic concrete. IF the
selling price of the product to contractors is P42.50 per ton , how many tons
must the plant produce and sell to break-even if the before-tax minimum
attractive rate of return is 25%? Assume a ten-year life for the batching plant
adn the delivery equipment with 10% of the first cost as salvage value.

To reduce flood damage in a river valley in Southern Luzon, a flood control

dam is being proposed for construction. The initial cost is estimated to be
P4,600,000, with annual maintenance and inspecttion cost of P24,000. Every
5 eyars, minor reconstruction work will be undertaken on the dam at cost of
P150,000. If the dam is built, the flood damage is espected to bbe reduced
from P800,000 to P100,000 annually. Assuming the dam to be permament
and the interest rate is 8%, should the dam be built?

Two locations are being considered for a regional park. Improvedment

planned for either location will include roads, a swimming pool, picnic areas,
tennis and racquet ball courts, a ball field, basketball courts, and pavillions.
Disbenefits due to the loss to the province of real estate taxes and the
withdrawal of land from agriculture are provided for in the estimates. Using
an interest rate of 12% and a planninghorizon of 30 years, determine which
site should be selected using a.) the B/C method, and b.)the B-C criterion.
Estimates for both locations are shown below.
Location

Cost of land
P2,200,000

P1,600,000

Cost of improvements
P1,500,000

P1,200,000

Annual operation and maintenance

P120,000

P96,000

Annual revenue from concessionaires

P810,000

P600,000

Annual disenefits
P150,000

P120,000

There are three mutually exclusive alternatives for a government project,

with the following data :
Project
Annual benefit

A
P250,000

C
P320,000

P350,000
Annual cost

P100,000

B/C ratio

2.50

P135,000
2.37

P180,000

1.94

Determine the best alternative.

The government plans to build a system of retention dams in Northern Luzon

to reduce the annual damage from floods. Each dam would be located on one
of the contributory streams to the flood basin. In case of heavy flood, the
gates in a dam are closed and the reservoir behind the dam, normally empty,
would begin to fill. Each dam is estimated to last 50 years with no salvage
value. All, or any, of the dams can be constructed.
Dam Construction Cost Annual Maintenance Cost of Dam
of Damage

Annual Cost

None

P5,200,000

P21,900,000
P2,900,000

P120,000

P15,400,000
P3,200,000

P105,000

P14,500,000
P4,000,000

P90,000

The damage listed in the last column are those that would occur if only the
ccorresponding dam is built. if more than one dam is built, the total savings
are assumed to be the sum of the savings that each would achieve by itself. If
the cost of capital is 8%, which dam, if any, should be built?Use B/C analysis

The Sunshine Realty Company purchased a commercial lot for P250,000 on

which they will construct an office building. They have under consideration
three different building plans with the estimated tabulated below. If their
minimum attractive rate of return is 10%, a.) calculate the B/C ratio and the
(B - C) for each alternative, and b.) using incremental B/C ratio, determine
which alternative should be selected.
Building Height
stories

4 stories

8 stories

12

Cost of building

P650,000

P1,500,000 P2,400,000

Resale value of property

P350,000

P720,000

P1,000,000

P120,000

P250,000

P340,000

at the end of 30 years

Net annual income

An investor has three investment alernatives under consideration. Determine

which alternative she should select if i=15% an n= 10 eyars for all
alternatives.
Alternative

Initial investment
P60,000

P40,000

P52,000

Annual net income

P11,500

P7,800

P10,200

Salvage value
P12,000

P8,000

P10,000

Consider four alternatives A, B, C, and D with their respective annual

benefits,disbenefits,costs, and savings.
a.) Determine the B/C ratio and 9B - C) for each alternative.
b.) Using incremental B/C ratio, determine whcih alternative whould be
selected.
Alternative

Benefits

P180,000

Disbenefits
P118,000

P42,000

Costs

P128,000

Savings

P250,000

P300,000

P68,000
P184,000

P16,000
P54,000

P265,000
P27,000

D
P400,000
P92,000
P288,000
P38,000

Analysis of five mutually exclusive projects indicate the estimates tabulated

below . The projects have a useful life of 10 years and the minimum
attractive rate of return is 12% annually. Only the cost of the land will be
recovered at the end of the useful life of the project. Using the B/C method,
select the best alternative treating operation and maintenance cost a.) as
disbenefit, and b.) as part of the total cost.
Project

E
Cost of the land
P110,000

P100,000
P85,000
P120,000

Construction cost
P390,000

P400,000

P450,000

Annual O & M
P50,000

P48,000
P60,000

Annual income
P149,000

P135,000

P90,000
P510,000

P480,000

P54,000
P148,000

P40,000

P130,000

P165,000

The national government has under consideration the following mutually

exclusive alternatives for implementing a certain project. Annual benefits and
costs are tabulated below. Determine the aternative which should be selected
based on a B/C analysis.
Alternatives

Annual Benefit

Annual Costs

P4,200,000

P3,900,000

P3,800,000

P4,000,000

P6,400,000

P7,000,000

P5,700,000

P4,900,000

P3,200,000

P2,700,000

P7,500,000

P6,900,000

PRELIMS

Interest and discount

Juan dela Cruz borrowed money from a bank . He received P1,340 and
promised to pay P1,500 at the end of 9 months . Determine the following :
(a) The rate of simple interest
(b) The corresponding discount rate