evani Costs for Non-Routine Decision Making 311

arcise 10 (Make or Buy a Component)

Exerc
TM Company manufactures 20,000 units of part R-3 each year for use on
KTTM line. At this level of activity the cost per unit for part R-3
its production
follows:
Direct materials P 4.80
Direct labor 7.00
Variable manufacturing overhead 3.20
Fixed manufacturing overhead 10.00
Total cost per part P25.00
An outside supplier has offered to sell 20,000 units of part R-3 each year to
KTTM Company for P23.50 per part. If KTTM Company accepts this offer,
the facilities now being used to manufacture part R-3 could be rented to
another company at an annual rental of P150,000. However, KTTM
Company has determined that P6 of the fixed manufacturing overhead being
applied to part R-3 would continue even if part R-3 were purchased from the
outside supplier.
Required:
Prepare computations showing how much profits will increase or decrease if
the outside supplier's offer is accepted.
Exercise 11 (The Economists' Approach to Pricing)
Cecile owns an ice cream stand that she operates in Boracay. Her store
caters primarily to tourists visiting during holidays.
Cecile is unsure of how she should price her ice cream cones and has
experimented with two prices in successive weeks during the busy season.
The number of people who entered the store was roughly the same each
week. During the first week, she priced the cones at P17.90 and 860 cones
Were sold. During the second week, she priced the cones at P13.90 and
1,340 cones were sold. The variable cost of a cone is P4.10 and consists
solely of the costs of the ice cream and of the cone itself. The fixed expenses
Of the ice cream stand are P425 per week.
Required:
Did Cecile make more money selling the cones for Pl7.90 or for P13.90?
Estimate the price elasticity of demand for the ice cream cones.
Estimate the profit-maximizing price for ice cream cones.