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This Accounting Materials are brought to you by www.everything.freelahat.com CHAPTER 9 SHORT-TERM NON-ROUTINE DECISIONS [Problem 1] a. Sunk costs = 2,000 units x P35 = P70,000 b. Relevant costs from reworking (2,000 x P5) P10,000 Relevant costs from selling-as-is none Inflows from reworking [(P20 – P5) x 2,000 units] P30,000 Inflows from selling as is (2,000 x P9) 18,000 Advantage of reworking P12,000 [Problem 2] a. Relevant cost to make the part P75.00 Relevant cost to buy the part (65.00) Advantage of buying the part per unit P10.00 Total advantage of buying the parts (90,000 x P10) P900,000 b. Relevant cost to make (P20 + P30 + P13) P63.00 Relevant cost to buy (65.00) Advantage of making per unit P(2.00) Total advantage of making (90,000 units x P2.00) P180,000 [Problem 3] Make_ Buy__ Purchase price (8,000 x P18) P144,000 Var prod costs (8,000 x P14) P112,000 Avoidable Fx costs (P48,000 x 60%) 28,800 CM – new product __ 32,000 1) Relevant costs P140,800 P112,000 2) Savings P 28,800 [Problem 4] (1) (a) Decrease in DL and VOH (P16 x 20% x 75,000) P240,000 / yr. Decrease in supervision (P8 x 20% x 75,000 x 10%) 12,000 / yr. Rental income 150,000 / yr. Increase in annual profit - buy alternative P402,000 Increase in profit in 5 yrs. (P402,000 x 5) P2,010,000 Purchase price ( 600,000) Salvage value 50,000 Net increase in inflows – buy alternative P1,460,000
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This Accounting Materials are brought to you by www.everything.freelahat.com It would be advisable for the business to buy a new equipment and gain a net cash inflow of P1,460,000 in 5 years. (b) Cost to make – old equipment Unit var cost (P6 + P12 + P4) P 22 Avoidable Fx OH (P8 x 20%) 1.60 P 23.60/part Cost to buy 20.00 Savings from buying P 3.60 /part Total savings from buying (75,000 x P3.60) P270,000 It would be advisable for the company to buy the parts from an outside supplier and save P270,000. (c) Make Buy Purchase price (75,000 x P20) P1,500,000 Direct materials (75,000 x P6) P 450,000 Direct labor (75,000 x P12 x 80%) 720,000 Variable OH (75,000 x P4 x 80%) 240,000 Avoidable fixed OH (75,000 x P8 x 20% x 90%) 108,000 . Relevant costs P1,518,000 P1,500,000 Savings P 18,000 It would be advisable for the business to buy the parts and save P18,000. 2) The alternatives have the following relevant costs: Maintaining the old equipment (75,000 x P23.60) P1,770,000 Buying the part [(75,000 units x P20) – P150,000] 1,350,000 Using the new equipment [(75,000 units x P20.24) – P150,000] 1,368,000 The best alternative is to buy the parts from an outside supplier because it has the lowest relevant cost of P1,350,000. [Problem 5] Make _ __Buy__ Purchase price (10,000 x P18) P180,000 Var prod cost (P55,000 + P45,000 + P20,000) P120,000 Avoidable Fx OH (10,000 x P4) 40,000 Rental income (15,000) Net relevant costs P160,000 P165,000 Savings in making P 5,000
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This Accounting Materials are brought to you by www.everything.freelahat.com [Problem 6] 1. Make Buy Purchase price (50,000 x P60) P3,000,000 Variable production costs (50,000 x P50) P2,500,000 Available fixed overhead 400,000 _________ Relevant costs P2,900,000 P3,000,000 Savings from making P 100,000 The company should opt to make the pumps and save P100,000 a year. 2. Make Buy Purchase price (35,000 x P60) P2,100,000 Variable production costs (35,000 x P50) P1,750,000 Avoidable fixed overhead 400,000 Relevant costs P2,150,000 P2,100,000 Savings from buying P 50,000 Marikina Store Company should buy the pumps from Biñan Air Supply and save P50,000 a year.
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chapter-9 - This Accounting Materials are brought to you by

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