SUNK COST

Sunk Cost – cost which cannot be recovered due to certain reasons.

FORMULA:

SC = Cn – Trade-in Value(or resale value)

DEPLETION
Depletion – decrease in worth of a natural resource such as timber lands, oil and gas wells, etc.

SAMPLE:
1. A generator costs P60,000 4 years ago and the salvage value is P10,000 6 years from now. If
it is to be replaced by a new one and the resale value is P25,000, find the sunk cost if money
is worth 12%.
(a) P22,832.70 (b) 21,832.70 (c) P21,382.70 (d) P22,382.70
2. To develop an oil well containing 2,000,000 barrels of oil required and initial investment of
P30M. In certain years, 400,000 barrels of oil were produced from this well. Determine the
depletion charge during this year.
(a) P300,000 (b) P301,000 (c) P310,000 (d) P300,100

BREAK-EVEN ANALYSIS
(a) Break-even Point (BEP) – it is a point ineconomic study where the sales volume or income is
just enough to pay the cost of production, hence, no profit.
FORMULA:

Sales = Fixed Cost + Variable Cost

Variable Costs: material costs, labor costs, and others

(b) Unhealthy Point (UHP) – it is a point in economic study where the sales volume is just
enough to pay the dividends.
FORMULA:

Sales = Fixed Cost + Variable Cost + Dividends

(c) Profit Calculation

FORMULA:

Sales = Fixed Cost + Variable Cost + Dividends + Profit

INFLATION
Inflation – decrease of money’s purchasing power due to increase in material cost and services
FORMULA:

F = P(1 + f)n
F = rate of inflation

SAMPLE:
1. A company manufacturing calculators has a fixed costs of P150,000 per month. If the variable
cost is P1,000 per unit and the average selling price is P2,500 per unit, find:
(a) The number of units needed to be produced per month at BEP.
(a) 50 (b) 100 (c) 150 (d) 200
(b) If the company pays P12 per share annually for 30,000 shares, find the number of units
needed to produce per month at unhealthy point.
(a) 120 (b) 130 (c) 140 (d) 150
2. XYZ Corporation manufactures book cases that it sells for P65.00 each. It costs XYZ P35,000
per year to operate its plant. This sum includes rent, depreciation charges on equipment and
salary payments. If the cost to produce one bookcase is P50.00, how many cases must be
sold each year for XYZ to avoid taking any loss?
(a) 2334 (b) 539 (c) 750 (d) 2233
3. A telephone switchboard 100 pair cable can be made up with either enamelled wire or tinned
wire. There will be 400 soldered connections. The cost of soldering a connection on the
enamelled wire will be P1.65, on the tinned wire, P1.15. A 100-pair cable made up with
enamelled wire costs P0.55 per lineal foot and those made up to tinned wire costs P0.76 per
lineal foot. Determine the length of cable run in ft so that the cost of each installation would be
the same.
(a) 1121.06 (b) 1001.25 (c) 864.92 (d) 952.38