Pretest - Answer Key Short-term Decisions MAS#5

INSTRUCTION: Write your solution in a separate sheet then write your final answer in the questionnaire and box your final
answer. Only blue or black pen is allowed.

#1 #3
The manufacturing cost of a machine part that the company
Milo has a stall which specializes in hand-crafted fruit
produced was determined as follows:
baskets that sell for P60 each. Daily fixed costs are P15,000
Direct Materials ₱ 80,000
and variable costs are P30 per basket. An average of 750
Direct Labor ₱ 125,000
baskets are sold each day. Milo has a capacity of 800 baskets
Varable FOH ₱ 50,000
per day. By closing time, yesterday, a bus load of teachers
Fixed FOH ₱ 65,000
who attended a seminar at the Development Academy of the
Philippines stopped for Milo's Stall. Collectively, they
The company produced 45,000 machine parts annually.
offered Milo P1,500 for 40 baskets.
An outside supplier has offered to sell a single part for P13.75

What is the effect on income if the company purchases the Determine whether or not Milo should accept or decline
machine part from outside supplier? special order and how much is the change.
Special order
Make (DM+DL+VFOH) ₱ 255,000.00 With excess capacity:
SP ₱ 37.50 per unit
Buy (13.75x45,000) ₱ 618,750.00 VC/U ₱ 30.00 per unit
₱ 7.50
NI (decrease) -₱ 363,750.00 ordered units 40
₱ 300.00 increase
Accept order!
#2
The Company manufactures 2 products: watches and bracelets
The income statement for 2019: #4
Watches Bracelets Total Lear Industries operates a cafeteria for its employees. The
Units 4,000 10,000 14,000 operations of the cafeteria requires fixed costs of P4,700 per
month and variable costs of 40 percent of sales. Cafeteria
Sales ₱ 800,000 ₱ 450,000 ₱ 1,250,000 sales are currently averaging P12,000 per month. Lear has an
COGS ₱ 520,000 ₱ 337,500 ₱ 857,500 opportunity to replace the cafeteria with vending machines.
Gross Profit ₱ 280,000 ₱ 112,500 ₱ 392,500 Gross customer spending at the vending machines is
Expenses ₱ 130,000 ₱ 112,500 ₱ 242,500 estimated to be 40 percent greater than the current sales
Net Income ₱ 150,000 ₱ - ₱ 150,000 because the machines are available at all hours. By replacing
the cafeteria with vending machines, Lear would receive 16
Fixed manufacturing cost included in COGS amount to P5 per percent of the gross customer spending and avoid all
unit for Bracelets and P50 per unit for Watches. cafeteria costs. A decision by Lear Industries to replace the
Variable selling expenses are P4.25 per unit for Bracelets and cafeteria with vending machines will result in a monthly
P21 per unit for Watches; remaining selling expense amounts increase (decrease) in operating income of
are fixed

The company wants to drop Bracelets product line. If line is Café Vending
dropped, fixed manufacturing cost would decline by 40%
because there is no alternative use for the facility. Sales ₱ 12,000.00 ₱ 16,800.00 1.4 of café sales
What would be the effect on net income if bracelet is VC ₱ 4,800.00
discontinued. CM ₱ 7,200.00
Drop or continue operation FC ₱ 4,700.00
Avoidable FC ₱ 100,000.00 NI ₱ 2,500.00 ₱ 2,688.00 16% of sales
([5x10,000] + [50x4,000]) x 40%
Lost VSAE + ₱ 42,500.00 Difference ₱ 188.00 increase

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Pretest - Answer Key Short-term Decisions MAS#5

(4.25x 10,000)
Lost CM (450k - 287.5K - 42.5k) - ₱ 120,000.00
Decrese in Profit ₱ 22,500.00

#5
The Company produces 15,000 pounds of Product A and
30,000 pounds of Product B each week by incurring a
common variable cost of P400,000. These two products can
be sold as is or processed further. Further processing of either
product does not delay the production of subsequent batches
of the joint product Data regarding these two products are as
follows:

Product A Product B
Selling price per pound
₱ 12 ₱ 9
without further processing

Selling price per pound ₱ 15 ₱ 11

with further processing
Total separate weekly
variable cost of further ₱ 50,000 ₱ 45,000
processing

The company seek for your advice, what should be the proper
course of action for product A and Product B.

Sell or process further

A B
Incremental
(3x15,000) ₱ 45,000.00 (3x30,000) ₱ 90,000.00
revenue
Incremental
₱ 50,000.00 ₱ 45,000.00
cost
-₱ 5,000.00 ₱ 45,000.00

Sell Process

2 JCC, CPA
Pretest - Answer Key Short-term Decisions MAS#5

3 JCC, CPA