MANAGEMENT ACCOUNTING

GROUP BUSINESS CASE ANALYSIS

Term 1, Academic Year 2014-2015
The following are the M.A. Cluster Companys unit costs of manufacturing and marketing a
high-style pen at an output level of 20,000 units per month:
Manufacturing cost
Direct Materials
P1.00
Direct Labor
1.20
Variable manufacturing overhead cost
0.80
Fixed manufacturing overhead cost
0.50
Marketing Cost
Variable
1.50
Fixed
0.90
The following situations refer only to the preceding data: there is no connection between the
situations. Unless stated otherwise, assume a regular selling price of P6 per unit.
a. For an inventory of 10,000 units of the high-style pen presented in the Statement of
Financial Position, what is the appropriate unit cost to use?
b. The pen is usually produced and sold at the rate of 240,000 units per year (an average
of 20,000 per month). The selling price is P6 per unit, which yields total annual
revenues of P1,440,000. Total costs are P1,416,000, and operating income is P24,000,
or P0.10 per unit. Market research estimates that unit sales could be increased by 10%
if prices were cut to P5.80. Assuming the implied cost-behavior patterns continue, and
if this action is taken, what would be the impact on operating income and unit sales?
c. A contract with the government for 5,000 units o the pen calls for the reimbursement of
all manufacturing costs plus a fixed fee of P1,000. No variable marketing costs are
incurred on the government contract. You are asked to compare the following two
alternatives:
Sales Each Month To
Alternative A
Alternative B
Regular Customers
15,000 units
15,000 units
Government
0 units
5,000 units
Is operating income under alternative B greater than alternative A? If so, by how
much?
d. Assume the same data with respect to the government contras as in situation c except
that the two alternatives to be compared are as follows:
Sales Each Month To
Alternative A
Alternative B
Regular Customers
20,000 units
15,000 units
Government
0 units
5,000 units
Is operating income under alternative B greater than alternative A? If so, by how
much?
e. The company wants to enter a foreign market in which price competition is keen. The
company seeks a one-time-only special order for 10,000 units on a minimum-unit-price
basis. It expects that shipping costs for this order will amount to only P0.75 per uint,
but the fixed cost of obtaining the contract will be P4,000. The company incurs no
variable marketing costs other than shipping costs.
Domestic business will be
unaffected. What is the selling price to break-even?
f. The company has an inventory of 1,000 units of pens that must be sold immediately at
reduced prices. Otherwise, the inventory will become worthless. What is the unit cost
relevant for establishing the minimum selling price?

g. A proposal is received from an outside supplier who will make and ship the high-style
pens directly to M.A. Cluster Companys customers as sales orders are forwarded from
M.A. Cluster Companys sales staff. The companys fixed marketing costs will be
unaffected, but its variable marketing costs will be slashed by 20%. The companys
plant will be idle, but its fixed manufacturing overhead will continue at 50% of present
levels. How much per unit would the company be able to pay the supplier without
decreasing operating income? What non-quantifiable factors should the company
consider in determining whether or not to buy from this outside supplier?
1. REQUIRED: Show calculations for the independent situations. Support your answers with
qualitative information when necessary. Do not forget to include your references.
2. Format of Written Report:
a) Paper size: 8.5 x 11
b) Margin: 1 on all sides
c) Font and Font size: Tahoma 11
d) Paragraph alignment: Justified
e) Paragraph spacing: 1.5
f) Attachments: Include (1) peer evaluation of each group member, and (2) other
attachments at the end of your report.
g) Insert the entire report in a short sliding folder with transparent cover.
h) The cover page template is shown on the next page:
M.A. Cluster Company COMPANY
A Group Business Case
Presented to the
Accountancy Department
De La Salle University
In partial fulfillment
Of the course requirements
In (name of course Section___)
SUBMITTED TO:
(Name of Faculty)
SUBMITTED BY:
Surname, Given Name, M.I.*
Surname, Given Name, M.I.
Surname, Given Name, M.I.
Surname, Given Name, M.I.
August __, 2014
*NOTE: The names should be arranged alphabetically.
3. Deadline of Written Report:
a) MW class: August 18, 2014 (Monday), during class hours
b) TH class: August 19, 2014 (Tuesday), during class hours

4. Rubric/Criteria for Grading:

c) To compute for the 5% team grade, please refer to the syllabus for the rubric.
d) To compute for the individual written group business case analysis grade, the average
peer evaluation grade (refer to Item#6) will be multiplied to the team grade. A sample
computation follows:
Application of ACCTBA3-related tools 100% * weight of 50% = 50.00%
Depth of insights
90% * weight of 30% = 27.00%
Quality in writing paper
90% * weight of 20% = 18.00%
Team grade
= 95.00%
Multiplied by: Average peer evaluation grade
(Assume 2 exemplary, 1 satisfactory or 290%/3)
96.67%
INDIVIDUAL GRADE
91.83%
Multiplied by: Business case grade
5%
INDIVIDUAL BUSINESS CASE GRADE
4.59%
5. Peer Evaluation
a) On a one-half sheet of bond paper, cross-wise, write the names of all your group mates
(in alphabetical order).
b) Give the corresponding percentage (70, 80, 90, 100) for each of your group mate. Refer
to table below. Be fair when evaluating.
c) Print your name then sign as evaluator.
d) Include this as an attachment at the end of the paper.
CRITERIA

Contribution
to teams
final output
[100%]

EXEMPLARY
100%
The student
contributes to
the teams final
output more
than what is
expected.

SATISFACTORY
90%
The student
contributes to the
teams final
output as
expected.

DEVELOPING
80%
The student
contributes
somewhat to the
teams final
output.

BEGINNING
70%
The student does
not contribute to
the teams final
output.