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Answer:
If we are James, we will disagree with Noel and encourage him to return to
school for the coming year. The things that he mentioned and considering like the
accommodation, clothing, car, and other incidentals are not that important because we
can say that these things cost the same regardless of whether Noel goes to school or
not. What he can do about these things is he can review and look for cheaper
alternatives for the room, car, and clothing. To reduce the cost of school, Noel can look
for part-time work, a job during vacations or holiday breaks, scholarship or other
financial assistance. If we will compute, the relevant costs for this decision are the
differential costs:
Opportunity cost or lost wages (take home)
(P1,500 x 70% x 12 months)......... P12,600
Tuition...................................................... 2,200
Books and supplies....................................... 300
Total differential costs........................ P15,100
Noel should recognize the difference of the present value of the differential after-
tax cash inflows or the net salvage value with the present value of differential costs of
getting the education that includes the opportunity costs of lost income. Moreover,
James can also convince Noel that better job opportunities could come in the future if
he returns to school and finishes his education. From the P9,240 he earns from the
part-time position (P1,100 x 70% x 12 months), the expenses will really be too much for
him. The opportunity cost of the increase in income which is P400 a month with
additional take home pay of P3360 a year will only last for a few years, because he will
eventually finish school and earn more because of his higher educational attainment.
Dela Fuente, Gener, Hidalgo, Huyo-a, Mendiola
COST DETERMINATION
Chocolate Dough is a cookie company in Marikina City that produces and sells
chocolate chip cookies with extremely high quality and service. The owner would like to
identify the various costs incurred during the year in order to plan and control the costs
in the business. Chocolate Dough costs are the ff:
· Utilities for the bakery 2,100
· Paper used in the packaging product 90
· Salaries and wages in the bakery 19,500
· Cookie ingredients 35,000
· Bakery labor and fringe benefits 1,300
· Administrative costs 1,000
· Bakery Equipment Maintenance 800
· Depreciation of bakery plant and equipment 2,000
· Uniforms 400
· Insurance for the bakery 900
· Rent for administration offices 17,200
· Advertising 1,900
· Boxes, bags and caps used in the bakery 1,100
· Office Manager's salary 13,000
· Bakery overtime premiums 2,600
· Bakery idle time 500
Requirements:
1. What is the total amount of product costs?
2. What is the total amount of period costs?
Answer:
Utilities for the bakery 2,100
Paper used in packaging product 90
Salaries and wages in the bakery 19,500
Cookie ingredients 35,000
Bakery labor and fringe benefits 1,300
Bakery equipment maintenance 800
Depreciation of bakery plant and equipment 2,000
Uniforms 400
Insurance for the bakery 900
Boxes, bags, and cups used in the bakery 1,100
Dela Fuente, Gener, Hidalgo, Huyo-a, Mendiola
Administrative costs 1,000
Rent for administration offices 17,200
Advertising 1,900
Office manager’s salary 13,000
Total period costs in pesos 33,100