ACTIVITY I: Decisions Under Certainty

Name: ________________________________ Date: _______________________

Section/Schedule: ______________________ Instructor: ___________________

Evaluate each given.

1. A Civil Engineer produces a certain construction material at a labor cost of P16.20 per
piece, materials cost of P38.50 per piece and variable cost of P7.40 per piece. The fixed
charges on the business is P100,000 a month. If the product is sold for P95.00 each, how
many pieces must be made and sold each month to break even?

2. A furniture manufacturer has an annual overhead cost of P100,000 plus 20% of the sales
in pesos. Labor costs P20.00 per set and the materials cost P10.00. He has a maximum
capacity of 1,000 sets per month, but expects to produce only 8,000 sets per year. If he
could sell all what he expects to produce, how much is the selling price of each set just to
break even?

3. A foundry produces a pair of eyebolt and nut at a labor cost of P0.70 a pair and materials
cost of P1.60 a pair. The fixed charged on the business are P25,000 a month and the
variable cost is P0.50 per pair. If the eyebolt and nut sell for P5.50 a pair, how many pairs
must be produced each month for the foundry to break even?

4. The Do-All Engineering Corporation bought a 72-inch vertical boring machine 10 years
ago for P90,000 with an expected life of 20 years. The management anticipates now that
the machine will serve well for another 6 years and proposes to purchase a new machine
costing P120,000 with an expected life of 16 years. The old machine is depreciated as
anticipated by straight-line formula and can be sold now for P60,000. The operating cost
of the old machine is P1,000 and for the new machine P500 per annum. The salvage value
of both machines is 10% of its value regardless of the length of time they are used. If
money is worth 10% to the company, should the old machine be replaced?

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