Scoman Activity 2 answers pdf PDF

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Dindo C. Boreres SCOMAN 2 sec code 222 Activity 2, Unit 2 ESSAY 1. Define relevant costing. - Relevant costing is a term used in management accounting which is a tool for making specific management decision. This cost are future costs that will differ among alternatives. Decision maker should ignore those cost that is already incurred in the past since it can’t be changed and is now irrelevant for decision making. 2. Differentiate total analysis to differential analysis. - Total analysis is about comparing the result of each alternative to come up a decision in which, for the decision to be reasonable, they have to get the revenue and the total cost of each alternative and the difference will now the key point for the decision maker for what action they have to take in order to decide successfully. While, differential analysis, it only focuses on the change that resulted from the difference between revenue and total cost, in which it assess the impact therefrom in creating specific management decision. 3. Enumerate and discuss each short-term decision activity that uses relevant costing. 1. Accept or reject special order - A company should decide when they should accept or reject a special order from a customer. A company might accept special order if the additional income they would receive would be greater than its additional cost it will be incurred. This might be applicable when the company is operating at a less maximum but has the capacity to handle special order. 2. Sell or process further - The key point of a company to decide to sell or process their product line further is choose which the two alternatives that would result to a higher profit. If further processing cost exceed the increase in revenue, then it is better to sell the product. And if the increase in price is higher than increase in cost, then it is better to process the product further. 3. Make or buy a part of a product line - A company when deciding to make or buy a part of a product, is they have to look what option has a lower cost. Decision maker should assess from this two alternatives if they have to outsource their product or to manufacture it directly. 4. Continue or shutdown a business segment - When a segment is not performing well, a company is ought to decide whether to continue or shutdown the said segment. In eliminating a segment, those unavoidable cost that will be allocated to the remaining segment must

not bring loss to their operating income. Otherwise, a failing segment must continue to operate to save the other segments from incurring big loss. 5. Product combination - When a company is experiencing a limited resource, they should rank their own products based on what unit has the higher contribution margin per unit. From this manner, they will identify which product should be prioritized so that, they will still maintain or still increase their profit despite of limited resources. Problem solving Problem 1. 1. Compute Joel Company’s income. Unit to produce 80,000 Per Unit Annual total Sales 40 P 3,200,000 Direct material 10 800,000 Direct labor 8 640,000 Variable overhead 4 320,000 Fixed overhead 6 480,000 Variable selling expenses 2 160,000 Fixed selling expenses 3 240,00 Total cost & expenses 23 P 2,640,000 Operating income 33 P 560,000 2. Joel Company could increase sales by 25% if it were to increase the fixed selling expenses (ex. placement of advertisements) by P120,000. Determine the effect on company profit using: A. Total analysis B. Differential analysis Sales increased by 25%. So, 80,000 1.25 = 100,000 units Normal sales Sales Direct material Direct labor Variable overhead Fixed overhead Variable selling expense Fixed selling expense Total cost and expenses Operating income

25% Increase

Differential Analysis 800,000 200,000 160,000 80,000 40,000

3,200,000 800,000 640,000 320,000 480,000 160,000

4,000,000 1,000,000 800,000 400,000 480,000 200,000

240,000

360,000

120,000

P 2,640,000

P 3,240,000

P 600,000

P 560,000

P 760,000

P 200,000

A. Total analysis - Based on total analysis and using the increase of sales by 25% and 120,000 fixed selling expense, Joel company will generate P 760,000 operating income. B. Differential analysis - Based on differential analysis, the operating income is increased by P 200,000.

Problem 2. REQUIRED: Should Joan Company make or buy part “jowan” from Julie Ann Company? Per Unit

Purchase Materials Handling Cost Direct Labor Factory Overhead Total Relevant Cost

Make

12,000 1,000 100 5,000 6,000

360,000 30,000 3,000 150,000 180,000 P 363,000

Make

Toatal Relevant Cost Opportunity Cost Total Cost

Buy

36,000

P 396,000

Buy

Incremental Increase / (decrease) (360,000) 30,0000 33,000 150,000 180,000 P (33,000)

363,000

396,000

Incremental Increase/(Decreas e) (33,000

40,000 P 403,000

P 396,000

40,000 P 7,000

It would be better if Joan Company would choose to buy rather than to make because, as the result shown above, buying from Julie Ann company will incur a lesser cost than making the part “jowan”.

Problem 3. REQUIRED: Should Joven Show make or buy the components? Make

Purchase Materials Direct labor Variable factory overhead Fixed factory overhead Total relevant cost

Buy

20,000 12,000 4,000 2,000

Incremental Increase/ (decrease) (20,000) 12,000 4,000 2,000

5,000

3,500

1,500

P 23,000

P 23,500

(P 500)

* To compute amount to be purchased (P 100 x 200) = P 20,000 *To compute the unavoidable cost (5,000 x 70%) = 3,500 Make

Total relevant cost Opportunity cost Total cost

23,000 2,500 P 25,500

Buy

23,500 P 23,500

Incremental Increase/ (decrease) (500) 2,500 P 2,000

Joven should rather to buy the components than making it because, buying would save their company incurring larger cost since buying would only cost them P 23,500 which is lesser than making , which costs P25,500.

PROBLEM 4 1.Prepare an incremental analysis showing whether the company should make or buy the electrical connectors. Make

Purchase Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total relevant cost

Buy

107,500

Incremental Increase/ (decrease) (107,500) 60,000 30,000 11,500

60,000 30,000 12,000

500

8,000

4,000

4,000

P 110,000

P 112,000

P 2,000

. Making the electrical connectors would save the company a lesser cost than outsourcing it to other company, since that making will only cost them P 110,000 than buying that has a higher cost of P 112,000.

2. Will your answer be different if the released productive capacity resulting from the purchase of the connectors will generate additional income of P25,000? Make

Total relevant cost 110,000 Opportunity cost Total cost P 110,000

Buy

112,000 25,000 P 137,000

Incremental Increase/ (decrease) (2,000) (25,000) (P 27,000)

. The additional income of P25,000 from the purchase of the connectors will increase the cost if the company will buy their connectors outside. Therefore, making will be the best idea for the company because they will only incur a lesser cost than outsourcing those connectors outside.

Problem5 Instructions Using incremental analysis, determine whether Jigo Fiber should accept the Army’s offer. Revenue (200,000[2.00 + 0.50+1.00 + 1.02 ]) Variable Cost: Direct Materials (2.00 × 200,000) Direct Labor (0.50 × 200,000) Variable Manufacturing Overhead (1.00 × 200,000) Total Variable Cost Net Income

P 904,000 400,000 100,000 200,000 700,000 P 204,000

Therefore, Jigo Fiber should accept the army’s offer as it incurs an additional income of 204,000.

PROBLEM 6 1. Prepare an incremental analysis for the special order. INCREMENTAL ANALYSIS FOR SPECIAL ORDERS Per unit Total Sales 7.50 112,500 Cost of goods sold 5 75,000 Variable Overhead (2,500,000x70%/350,000) Operating expenses Variable expenses 1.75 26,250 (875,000x70%/350,000) Shipping cost 3,000 Operating income P 8,250 2. Should Joey Company accept the special order? Why or why not? - Joey company should accept the special order because the additional income of P112,000 exceeds the cost of P104,250.

PROBLEM 8 REQUIRED: 1. The elimination of the North Store would result in an overall company net operating income (loss) of?

Sales Less:variable expense Contribution margin Less: traceable fixed expense Segment margin Less: common fixed expense Net operating income.

South store P 800,000 (360,000) P440,000 (180,000) P 260,000 (300,000) P 40,000

2. Assume that if North Store is closed, one-fifth (20%) of its traceable fixed expense would continue unchanged. Also, closing of North Store would result in a 20% decrease in sales of South Store. The overall decrease in operating income will be? South store Sales (800,000x.80) P 640,000 Less:variable expense (360,000x.80) 288,000 Contribution margin P 352,000 Less: traceable fixed expense (210,000x.20)+180,000 (222,000) Segment margin P 130,000 Less: common fixed expense (300,000) Net operating loss. (P 170,000) Net income prior to shutdown. (110,000) Decrease in operating income. (P 280,000)

Problem 9. INSTRUCTIONS: Is Mary Claire right about eliminating the Catbalogan Division? Prepare a schedule to support your answer. The other 5 division Sales Less: Cost of good sold Variable & fixed (5 division) Fixed (catbalogan division) Gross profit Less: operating expenses Variable & fixed (5 division) Fixed (catbalogan division) Operating income Net income prior to shutdown Decrease in operating income

Amounts P 1,664,200 978,520 16500

998,020 P 669,180

527,940 23,000

550,940 P 118,240 (113,240) (P 15,000)

Eliminating Catbalogan division is not a good idea because as illustrated above, there will be a decrease in operating income of the company of P 15,000. Therefore, it is better to continue the operation of Catbalogan division than incurring a loss.

PROBLEM 10 REQUIRED: 1. Shutdown point in units and pesos. Shutdown point= Fixed Cost if Continued – Shutdown Cost Contribution Margin per Unit = 5,000 – 2,000 1 = P3,000 1 = 3,000 per unit

2. Should the company continue or shutdown operations if the company expects to demand to be:

A. 4,000 units When the demand is greater than the shutdown point, the operation is working good.Therefore, it better to continue the operation rather than shutting it down.

B. 2,000 units When the demand is lesser than the shutdown point, a greater loss shall be incurred. Therefore it would he better if the operation will shutdown.

PROBLEM 11 1. Which product(s) should the firm sell at split-off point? M Sales. Additional cost Total. Sale value. Total.

P 36,000 (2,000) P 14,000 (16,000) P 2,000

I Sales. Additional cost Total. Sale value. Total.

P 26,000 (12,000) P 14,500 (9,500) (P 5,000)

.

L Sales. Additional cost Total. Sale value. Total.

P 10,500 (8,000) P 2,500 (2,000) (P 500)

O Sales. Additional cost Total. Sale value. Total.

P 2,500 (3,000) (P 500) (P 500)

Product M is the only product that resulted to a promising result, therefore, the firm should sell product M at split off point.

2. If James Company takes the most profitable action, what will be its profit? - Based on the illustration bellow, and if the company take the most profitable action, the profit will be P 23,000.

Amounts Joint cost Profit

M

I

L

O

Total

P 16,000

14,500

2,500

-

P 33,000 (30,00)

P 23,000

Problem 12. 1. How many units should be produced and sold to maximize the weekly contribution? .

Product A - 100 x 10 = 1,000 Product B - 80 x 5 = 400 Product C - 150 x 10 = 1,500 330 units 2,900 units/hour - Based on the illustration, its analysis is, units should be reduced in order to maximize the weekly contribution, since that the 2,900 units per hour had exceeds the 2,400 weekly contribution. .

Product A - 50 x 10 = 500 Product B - 80 x 5 = 400 Product C - 150 x 10 = 1,500 280 units 2,400 units/hour - In order to maximize the weekly contribution, the product A was reduced to 50 units to get the 2,400 weekly contribution, since that among all of its products, Product A has the lowest contribution per hour. 2. How much is the profit associated with the best product combination? Products A B C Total Fixed cost Profit

Unit/hour P 500 400 1,500

Contribution margin/hour 2 3.6 2.5

Amounts P 1,000 1,440 3,750 P 6,190 (5,000) P 1,190...