40. Holt Industries has two sales territories-East and West.

Financial information for

the two territories is presented below:

East West

Sales P980,000 P750,000

Direct costs:

Variable (343,000) (225,000)

Fixed (450,000) (325,000)

Allocated common costs (275,000) (175,000)

Net income (loss) P(88,000) P 25,000

Because the company is in a start-up stage, corporate management feels that the East
sales territory is creating too much of a cash drain on the company and it should be
eliminated. If the East territory is discontinued, one sales manager (whose salary is
P40,000 per year) will be relocated to the West territory. By how much would Holt's
income change if the East territory is eliminated?

a. increase by P88,000

b. increase by P48,000

c. decrease by P267,000

d. decrease by P227,000

Woodville Motors

Woodville Motors is trying to decide whether it should keep its existing car washing
machine or purchase a new one that has technological advantages (which translate
into cost savings) over the existing machine. Information on each machine follows:

Old machine New machine

Original cost P9,000 P20,000

Accumulated depreciation 5,000 0

Annual cash operating costs 9,000 4,000

Current salvage value of old machine 2,000

Salvage value in 10 years 500 1,000

Remaining life 10 yrs. 10 yrs.

41. Refer to Woodville Motors. The P4,000 of annual operating costs that are
common to both the old and the new machine are an example of a(n)

a. sunk cost.

b. irrelevant cost.

c. future avoidable cost.

d. opportunity cost.

42. Refer to Woodville Motors. The P9,000 cost of the original machine represents
a(n)

a. sunk cost.

b. future relevant cost.

c. historical relevant cost.

d. opportunity cost.

43. Refer to Woodville Motors. The P20,000 cost of the new machine represents a(n)

a. sunk cost.

b. future relevant cost.

c. future irrelevant cost.

d. opportunity cost.

44. Refer to Woodville Motors. The estimated P500 salvage value of the existing
machine in 10 years represents a(n)
a. sunk cost.

b. opportunity cost of selling the existing machine now.

c. opportunity cost of keeping the existing machine for 10 years.

d. opportunity cost of keeping the existing machine and buying the new machine.

45. Refer to Woodville Motors. The incremental cost to purchase the new machine is

a. P11,000.

b. P20,000.

c. P13,000.

d. P18,000.