Question

afferential Cost Analysis Direct material Direct labor Variable overhead P450,000/150,000 units) Fixed overhead Per Unit P2.00 acable marketing costs keting and administrative cost Fixed marketin (P210,000/150,000 unit 2.00 1.50 3.00 1.05 Total e firm's operating income before income taxes if the firm produ 1.40 19.95 Required: Compute the 000 units in 2017. 110,000 unit For 2018, the fir the firm produced and sold s as it sold in 2017. However, in a to a state government. There are no contract. 7 cost plus P0.22 the contract, wh c Assume that e firm expects to sell the same number of units as it sold in 2017. aper, the firm noticed an invitation to lid on selling X to a state Forde newspaper, the firm noticed same number of ho marketing costs associated with the order if the company is aw mpany wishes to prepare a bid for 40,000 units at le order if the company is awarded the P0.25 per unit. How much should it bi a for 40,000 units at its full manufacturing ct, what would be its effect on operatie ud it bid? If the company is successful at getting that the company is awarded the contract on lanuary 2 2018, and in addition order from a foreign vendor for 40,000 units at the regular price of 10 shipment will require the firm to incur its normal market it contract contains a 10-day escape clause (i.e., the firm can reje o days without any penalty). If the firm accepts the government contract, o 116 times the straight time rate will be paid on the 40.000 units. In addition, ad will increase by '60,000 and variable overhead will behave in its normal pattern pany has the capacity to produce both orders. Decide the following: 1. Should the firm accept the foreign offer? Show the effect on operating income receives an order foreign shipment will re 2018, and in addition it also at the regular price of P15 per unit. government co within 10 days 1.e, the firm can reject the contract pts the government contract, overtime pay at 1% ti overhead will The company has 2 accepting the order. Assuming the foreign order is accepted, should the firm accept the governmen order? Show the effect on operating income of accepting the government order 8.19 Esther Goldman is an attorney employed by a large law firm at P95,000 per year. She is ring whether to become a sole practitioner, which would probably generate annually in operating revenues and P220,000 in operating expenses. considering whether P325,000 in operating Required: 1. Present two tabulations of the annual income effects of these alternatives. The second tabulation should include the opportunity cost of Goldman's compensation as an employee. 2. Suppose Goldman prefers less risk and chooses to stay as an employee. Show a tabulation of the income effects of rejecting the opportunity of independent practice. 8.20 Three years ago the Broadway Dairy Queen bought a frozen yogurt machine for P8,000 A salesman has just suggested to the Broadway manager that she replace the machine with a new, P10,000 machine. The manager has gathered the following data:

Answer 1

a.
Operating Income Before Income Tax for 110000 Units in 2017
Particular	Amount
Sales Revenue	1,650,000
Less:
Material	110,000
Labour	220,000
Variable Overhead	165,000
Variable Marketing Overhead	115,500
Operating Revenue	1,039,500
Less:
Fixed Overhead	450,000
Fixed Marketing Overhead	210,000
Operating Income	379,500
b.
Bid For 40000 Units to the government
Particular	Amount
Material	40,000
Labor	80,000
Variable Overhead	60,000
Total variable cost	180,000
Add: Profit @ 0.25 per unit	10,000
Total Bid Value for Government Order	190,000
Effect on Operating Income
Particular	Amount
Sales Revenue
For 110000 Units	1,650,000
For 40000 Units	190,000
Less:
Material	150,000
Labour	300,000
Variable Overhead	225,000
Variable Marketing Overhead (only for 110000 Units)	115,500
Operating Revenue	1,049,500
Less:
Fixed Overhead	450,000
Fixed Marketing Overhead	210,000
Operating Income	389,500
Operating Income before tax has increased after the government contract in 2018
c.
c.1.
Analysis of foreign vendor order
Particular	Price Per Unit
Price for Foreign Order Per unit	15
Less:
Material	1
Direct Labor	2
Variable Overhead	2
Variable Marketing cost	1.05
Contribution	9.45
As the contribution per unit is 9.45 from Foreign vendor. Order must be accepted
Effect on Operating Income after accepting foeign vender order
Particular	Amount
Sales Revenue
For 110000 Units	1,650,000
For 40000 Units	600,000
Less:
Material	150,000
Labour	300,000
Variable Overhead	225,000
Variable Marketing Overhead	157,500
Operating Revenue	1,417,500
Less:
Fixed Overhead	450,000
Fixed Marketing Overhead	210,000
Operating Income	757,500
c.2.
Effect on operating Income after accepting Government order also
Particular	Amount
Sales Revenue
For 110000 Units	1,650,000
For 40000 Units (Foreign Vendor)	600,000
For 40000 Units (Government Order)	190,000
Less:
Material	190,000
Labour
For Normal Capacity of 150000 Units	300,000
For Overtime of 40000 Units (2 X 1.5 Times = 3)	120,000
Variable Overhead	285,000
Variable Marketing Overhead (only for 150000 Units)	157,500
Operating Revenue	1,387,500
Less:
Fixed Overhead (450000+60000)	510,000
Fixed Marketing Overhead	210,000
Operating Income	667,500
Operating Income has reduced to 667500 from 757500 when the order from Government is accepted. Hence the company should not accept the government order.