You are on page 1of 3

Dela Fuente, Gener, Hidalgo, Huyo-a, Mendiola

COST CASE ANALYSIS


         Noel Bernardo has been working a part-time job that pays 1,100 a month. His
employer has offered to convert the job into a full-time position at 1,500 a month. Take
home pay is 70 percent of these amounts. In view of this offer, Noel is tempted not to
return to school for the coming year. His friend James is trying to convince him to return
to school. Noel remarks, "I've been talking to other friends and no matter how you figure
it, school is extremely expensive. Tuition is about 2,200 per year. Books and supplies
are another 300. Room and board will cost 3,700 a year even if I share a room. It costs
2,400 a year to keep up my car and clothing, and other incidental amount to 3,000 per
year. I figure school will cost me the total of all these costs, which is 11,600 plus my lost
salary of 18,000 per year. At 29,600 a year, who can justify higher education?"
         If you were James, how would you respond to Noel's remarks? Justify your case
showing cost computation if he would choose schooling.
 

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

         Bakery overtime premiums                                 2,600


         Bakery idle time                                                  500
     Total product costs in pesos                            66,290

 
         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
 

You might also like