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In partial fulfillment
Of the course requirements
In ACTMANA
SUBMITTED TO:
Barredo, Brixen S.
SUBMITTED BY:
Yeo, Josua
December 20, 2014
The following are the Oldcastle Divisions unit costs of manufacturing and marketing
different products at output levels of 150,000 units for the first year, 160,000 units
for the second year and 180,000 units for the third year:
Manufacturing cost
Direct Materials P10.00
Direct Labor 12.00
Variable manufacturing overhead cost 8.00
Marketing Cost
Variable 5.00
The following situations refer only to the preceding data answers are as follows:
1. Compute for the unit cost of the new product that should be included in the
inventory account for the first year assuming the first strategy was used and that
production amounted to 200,000?
Variable Costs
Fixed Costs
Number of Units
Cost per Unit
7,000,000.0
0
22,000,000.
00
200,000.00
145.00
2. Assuming the company used the first strategy, provide the following:
a. Net loss on the first year
Gross Sales
Manufacturing Cost
25,500,000.0
0
1,500,000.00
1,800,000.00
1,200,000.00
Marketing Cost
Fixed Cost
Net Operating Loss
4,500,000.00
750,000.00
22,000,000.00
-
1,750,000.0
0
Gross Sales
Manufacturing Cost
1,600,000.0
0
1,920,000.0
0
1,280,000.0
0
4,800,000.0
0
800,000.00
22,000,000.
00
400,000.0
0
Marketing Cost
Fixed Cost
Net Operating Loss
Gross Sales
Manufacturing Cost
1,800,000.0
0
2,160,000.0
0
1,440,000.0
0
5,400,000.00
900,000.00
22,000,000.0
0
2,300,000.
00
Marketing Cost
Fixed Cost
Net Operating
Income
3. Assuming the company used the second strategy, provide the following:
a. Break-even Point
Fixed Cost
Divide: Selling Price
Variable Cost
Break-even Point
(Units)
27,000,000.0
0
190.00
35.00
174,193.5
5
Sales
Less: Variable Costs
Sales
Less: Variable Costs
Fixed Costs
Degree of Operating Leverage
Y2
Sales
Less: Variable Costs
Sales
Less: Variable Costs
Fixed Costs
Degree of Operating Leverage
Y3
28,500,000.0
0
5,250,000.00
28,500,000.0
0
5,250,000.00
27,000,000.0
0
23,250,000.
00
(3,750,000.0
0)
(6.20)
30,400,000.0
0
5,600,000.00
30,400,000.0
0
5,600,000.00
27,000,000.0
0
24,800,000.
00
(2,200,000.0
0)
(11.27)
34,200,000.0
0
6,300,000.00
34,200,000.0
0
6,300,000.00
27,000,000.0
0
27,900,000.
00
900,000.00
31.00
c. Change in net income from first year to second year in % and in amount
Gross Sales
Manufacturing Cost
28,500,000.
00
1,500,000.00
3
1,800,000.00
1,200,000.00
Marketing Cost
Fixed Cost
Net Operating Loss Y1
Gross Sales
Manufacturing Cost
30,400,000.
00
1,600,000.00
1,920,000.00
1,280,000.00
Marketing Cost
Fixed Cost
Net Operating Loss Y2
4,500,000.0
0
750,000.00
27,000,000.
00
3,750,000.0
0
(2,200,000.0
0)
(3,750,000.0
0)
4,800,000.0
0
800,000.00
27,000,000.
00
2,200,000.0
0
1,550,000.0
0
(3,750,000.0
0)
(0.41)
(2,200,000.0
0)
(3,750,000.0
0)
1,550,000.0
0
4. Assuming production of the company for the first year resulted to 200,000 units
with the expected demand being the actual demand. Should management decide to
discontinue the new product on the second year, at what minimum price should the
company sell the remaining units?
Gross Sales
Manufacturing Cost
34,000,000.00
2,000,000.00
2,400,000.00
1,600,000.00
Marketing Cost
Fixed Cost
Net Operating Income
6,000,000.00
1,000,000.00
22,000,000.00
5,000,000.00
5.0
0
2.0
0
2.0
0
1.0
0
Assuming that all fixed costs related to the material will be saved if the company
bought it from the manufacturer, should Oldcastle buy or continue to make the
material?
Direct Materials
Direct Labor
400,000.00
1,800,000.00
1,600,000.00
1,600,000.00
200,000.0
0
Oldcastle should outsource the material based on what is offered to them rather
than producing the material on their own because they will be saving Php 200,000
in costs.
6. During the first year of operations, the company Oldcastle determined that their
plant capacity is not enough to cater to the demand of the new product because
most of their capacity is used to manufacture an old product. Details of the old
product are as follows:
Manufacturing cost
Direct Materials
Direct Labor
Variable Manufacturing
Overhead
Marketing cost
Variable
20.00
9.00
12.00
8.00
The old product is being sold for PHP100 per unit. To produce the old product, the
company needs to allot 4 hours per unit while to produce the new product, the
company needs to allot 8 hours per unit. Assuming an unlimited demand for both
products, which product should the company produce first?
Old
100.00
49.00
51.00
51%
New
49%
51.00
4.00
12.75
49.00
8.00
6.13
The company should focus on producing the old product first because it will give a
return of PHP12.75 more contribution margin per hour producing the old product
rather than having the new product at PHP6.13 per hour.