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Assignment 3 Relevant Costing

The document provides information about four problems involving business decisions. Problem 1 provides financial information for three divisions of Boozy Inc. and asks whether the Wise division, which had a net loss, should be discontinued. Problem 2 provides production information for three joint products and asks which should be further processed or sold at the split-off point. Problem 3 provides cost and market data for two products and asks which should be manufactured given additional machine hours. Problem 4 provides cost and sales information for a company considering temporarily shutting down operations due to a labor strike.

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Mallet S. Gacad
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234 views

Assignment 3 Relevant Costing

The document provides information about four problems involving business decisions. Problem 1 provides financial information for three divisions of Boozy Inc. and asks whether the Wise division, which had a net loss, should be discontinued. Problem 2 provides production information for three joint products and asks which should be further processed or sold at the split-off point. Problem 3 provides cost and market data for two products and asks which should be manufactured given additional machine hours. Problem 4 provides cost and sales information for a company considering temporarily shutting down operations due to a labor strike.

Uploaded by

Mallet S. Gacad
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem 1

Boozy Inc has three divisions: Bud, Wise, and Er. The results of May, 2020 are presented
below:

Bud Wise Er Total


Units sold 3,000 5,000 2,000 10,000
Revenue P70,000 P50,000 P40,000 P160,000
Less variable costs 32,000 26,000 16,000 74,000
Less direct fixed costs 14,000 19,000 12,000 45,000
Less allocated fixed costs 6,000 10,000 4,000 20,000
Net income P18,000 (P5,000) P 8,000 P21,000
All of the allocated costs will continue even if a division is discontinued. Boozy allocates
indirect fixed costs based on the number of units to be sold. Since the Wise division has a net
loss, Boozy feels that it should be discontinued. Boozy feels if the division is closed, that sales at
the Bud division will increase by 20%, and that sales at the Er division will stay the same.

Instructions
A. Prepare an analysis showing the effect of discontinuing the Wise division.
B. Should Boozy close the Wise division? Briefly indicate why or why not.

Problem 2
A manufacturing company uses a joint production process that produces three products at
the split-off point. Joint production costs during April were P720,000. The company uses
the net realizable value method for allocating joint costs. Product information for April
was as follows:

Products
R S T
Gallons produced 2,500 5,000 7,500
Sales prices per gallon
At the split-off point P 100 P 80 P 20
After further processing P 150 P 115 P 30
Costs to process after split off P 150,000 P 150,000 P 100,000

Required:
a. Assume that all three products are main products and that they can be sold at the
split-off point or processed further, whichever is economically beneficial to the
company. Which of the three products should be processed further and which
should be sold at split-off.
b. How much is the total income to be earned from the decision in letter (a) above.

Problem 3
Brave Company manufactures and sells two products. Relevant per unit data concerning each
product are given below:
Product
Standard Deluxe
Selling price P50 P75
Variable costs P30 P30
Machine hours 1.6 3.75
Market Limit 600 100

Instructions: Show analysis and recommendation in good form


1. Compute the contribution margin per unit of the limited resource for each product.
2. If 1,200 additional machine hours are available, which product should be manufactured?
How much contribution margin will the company earn from this product? (Disregard
market limit)
3. Considering the market limit, how many units of each product should be produced? How
much contribution margin will the company earn from this combination?
4. Prepare your recommendation.

Problem 4
Jano Corporation produces wood glue used by furniture manufacturers. The company
normally produces and sells 10,000 gallons of the glue each month. White glue is sold for P 280
per gallon, variable costs is P 168 per gallon, fixed factory overhead cost total P 460,000 per
month and the fixed selling costs total P 620,000 per month.
Labor strikes in the furniture manufacturers that buy the bulk of white glue have caused the
monthly sales of Jano to temporarily decrease to only 15% of its normal monthly volume. Jano
Corporation’s management expects that the strikes will last for about two months, after which
sales of white glue should return to normal. However, due to the dramatic drop in sales level,
management is considering to close down its plant during the two month period that the strikes
are on.
If the company will temporarily shut down its operations, it is expected that the fixed factory
overhead costs can be reduced to P 340,000 per month and that the fixed selling and
administrative costs can be reduced by P 62,000 per month. Start-up costs at the end of the
shutdown period would total P 56,000.

Required:
1. Compute for the shutdown cost
2. Determine the shutdown point
3. At a sales level of only 30% of the normal volume, should the company continue
operating or shutdown temporarily for the two months? Defend your answer.

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