BM2021

NAMES: DATE: SCORE:

ACTIVITY
(6 items x 5 points)

1. After several years producing and selling at a capacity of 50,000 units, Milton Company faced a year
with projected sales and production of 38,000 units. A potential customer offered to purchase 7,000
units at a price of P18 each. The normal sales price is P30 each.
Direct material P9.00
Direct labor 6.50
Variable manufacturing overhead 2.00
Fixed manufacturing overhead 3.75
Total P21.25

Should Milton accept the order? Justify your answer.

2. Fuji Company is currently manufacturing part A123, producing 40,000 units annually. The part is
used in the production of several products made by the company. The cost per unit for A123 is as
follows:
Direct material P9.00
Direct labor 3.00
Variable manufacturing overhead 2.50
Fixed manufacturing overhead 4.00
Total P18.50
Of the total fixed overhead assigned to A123, P88,000 is avoidable (the lease of production
machinery and salary of a production line supervisor–neither of which will be needed if the line is
dropped). The remaining fixed overhead is a common fixed overhead. An outside supplier has
offered to sell the part to Fuji for P16. There is no alternative use for the facilities currently used to
produce the part.
Should Fuji Company make or buy part A123? Justify your answer.

3. The following information is available for Titan Company. Based on this information, the
management is considering eliminating product line C. They assumed that by operating only product
lines A and B, they would have higher profits. It was also determined that if product line C is
discontinued, 80% of the fixed overhead can be avoided, and 70% of the fixed selling and
administrative expenses can also be avoided.

Product A Product B Product C

Sales P100,000 P300,000 P200,000
Cost of Goods Sold
Direct Materials 25,000 75,000 80,000
Labor 20,000 40,000 50,000
Variable Overhead 10,000 20,000 15,000
Fixed Overhead 5,000 35,000
Total 60,000 150,000 180,000
Gross Profit 40,000 150,000 20,000
Selling and Administrative
12 *Property of
STI
 BM2021
Variable 12,000 30,000 10,000

12 *Property of
STI
 BM2021

Product A Product B Product C

Fixed 8,000 30,000
Total 20,000 40,000
Net Income (Loss) P20,000 80,000 (20,000)

Based on the above data, should product line C be continued or eliminated? Justify your answer.

Rubric for problem-solving:

CRITERIA POINTS
Correct accounts and amounts used. 3
Computed final amounts are correct and balanced. 2
TOTAL 5

Rubric for short-answer:

CRITERIA PERFORMANCE INDICATORS POINTS
Content Provided pieces of evidence,
supporting details, and factual 3
scenarios
Organization Expressed the points in a clear and
of ideas logical arrangement of ideas in the 2
paragraph
TOTAL 5

12 *Property of
STI