MGT 115 CASE PROBLEM EXERCISES

LO: Appy cost analysis to case problems.

This case problem set is an output created from students’ submissions. Your role is to
select problems based on the instructions below and solve it using cost benefit analysis,
marginal analysis or investment decisions.
INSTRUCTIONS:
1. Choose 2 problems if individual output. Answer all if group (maximum 4
members) output.
2. The decisions made must be based on the results of your computations. Hint:
Use main points to explain your decisions supported by the computations.
3. All given data and computations must be shown.
4. Decisions must be based on the solutions.
5. Word format submission –

Name: Section/Date
Case Problem Activity
Case Problem: copy the problem from the problem exercises
Given: Identify all data provided
Note: If you need to add data, put assumptions
Solutions: Show computations
Decision (s):

a. State the decision

b. Justify

Note: Each decision should be made justified with Cost and benefit
analysis, Extent decision making using marginal analysis or Investment
decisions parameters.

6. Technical writing – Times roman, font size 11” single space. Maximum 2 pages if
possible. Heading as indicated above.
7. Submission is during class time. This is an asynchronous activity needed to be
done during class time.
 8. If you are a contributor of this problem set, please do not choose it. The solutions
on these problems are based on cost analysis. Qualitative justification is
incomplete.
CASE PROBLEM EXERCISES:
1. Zarick  Amiel Mercadejas is working as a Mechanical Engineer for Vesarius Reigo
Firm for 4 years. He has an exemplary job in the firm and has may experience and
credentials in his field.  He has an income of P245,207,00.  He decided to quit his job
because of low incentives and create his own Engineering consulting firm.  To run his
own firm, he acquired the cost of company registration, office space, hiring personnel,
and engineering supplies. When he operated the business he gained a revenue of
P550,000.00
The costs incurred in building his firm are the following:
Company Registration - P23,000.00
Office Space – P12,000.00
Hiring Personnel -P 90,000.00
Engineering supplies - P 250,000.00
Did Zamiel Mercadeja's made a good decision on leaving his job? Will Mercadeja's
business be profitable?

2. Carl is an owner of a clothing line here in Metro Manila. He is renting a commercial

space in Quezon City and he pays rent and electricity monthly. In order, to make his
business grow, he asked a friend to do an advertisement for a clothing line in which he
will publish online. Every time his clothes were sold out, he continuously buy plain shirts
again and reprint the clothing line design. His fixed cost is rent in a commercial space.
The variable cost is the shirts and printing ink used in the business. Compute for the
total cost, average cost and marginal cost. Based on the computed MC, what MR must
he maintain to decide an optimum level of units produced? Justify your decision(s).
 

Unit  Variable Cost  Fixed Cost  Total Cost  Average Cost Marginal Cost
1 P250.00 P2800.00
2 P325.00 P2800.00
3 P400.00 P2800.00
4 P520.00 P2800.00
5 P600.00 P2800.00

 
 
3. Regina is a professional hairstylist working on a well-known salon in Pasay. By
working full-time, she acquires an annual salary of P360,000 plus a health insurance
worth P50,000 every year. After working for the said salon for 11 years, Regina thinks of
opening her business where she can dedicate her skills and effort. She estimates that
by opening her own salon, she would earn P1,100,000 annually. The corresponding
annual rental fee is estimated at P50,000 and the expected annual employee wage is
P150,000. The total capitalization on equipment is P100,000.
(1) How much is the accounting profit?
(2) How much is the economic profit?
(3) Should Regina pursue opening her own salon if she wants to increase her annual
earnings?

6. Ben Martirez is a newly-hired head of the production team of the shoe business. The
production of shoes includes the production place, machinery, employees, and raw
materials. Assume that the place costs P300,000 and all the machinery needed costs
P200,000. The salary of a worker is P10,000 and the raw materials to produce a pair of
shoes cost P2,000. Usually, the business produces 1,200 pairs of shoes with the
accumulated workforce of 30 employees. Ben Martirez is deciding to keep the
production the same or increase it to 1,800 pairs of shoes but he needs to hire more
employees by 10 and increase also the budget allocated for raw materials. However,
increasing the production will also increase the profit by P3,000,000.
(1) Identify the fixed costs and variable costs in the current operations of Mr. Martirez?
(2) Determine the additional fixed costs and variable costs when he increases his
production 10 1,800 pairs of shoes.
(3) What decision can you recommend Mr. Martirez? To keep the current production of
1,200 pairs of shoes or increase to 1,800 pairs of shoes?
 4. Alex is employee in a cafeteria and his annual salary is P240,000 plus SSS
insurance of P40,000 annually. Alex is business minded and after 15 years of work he
dreams to establish his own cafeteria. Alex wants to open his new cafeteria in
Mandaluyong near a University.  His estimated annual income is P1,500,000. His
annual rent expense is P180,000, staff salary expense is P240,000 per year and capital
for equipment needed is P100,000. The annual utilities expense is P120,000,00.
(1) Compute the economic profit and accounting profit.
(2) Identify the fixed and variable costs.
(3) Give your recommendations if Alex stays as an employee or put up his business.