Wawa Enterprises has the capacity to produce 10,000 bearings, but operates at 90% of capacity.

Bearings
normally sell for P60 each, and cost an average of P50 to make, including a share of the monthly fixed costs
of P180,000. Ilog Corp has offered to buy 1,000 bearings at P40 each.
1. What is the relevant cost per unit?
2. What is the increase in contribution margin?

Snow Clean Corporation produces cleaning compounds and solutions for industrial and household use. While
most of its products are processed independently, a few are related. Grit 337, a coarse cleaning powder with
many industrial uses, costs P16 a pound to make and sells for P20 a pound. A small portion of the annual
production of this product is retained for further processing in the Mixing Department, where it is combined
with several other ingredients to form a paste, which is marketed as a silver polish selling for P40 per jar. This
further processing requires ¼ pound of Grit 337 per jar. Costs of other ingredients, labor, and variable
overhead associated with this further processing amount to P25 per jar. Variable selling costs are P3 per jar.
If the decision were made to cease production of the silver polish, P56,000 of Mixing Department fixed costs
could be avoided. Snow Clean has limited production capacity for Grit 337, but unlimited demand for the
cleaning powder.
3. What is the minimum number of jars of silver polish that would have to be sold to justify further processing
of Grit 337

Coleman company owns a machine that produces a component for the products the company makes and
sells. The company uses 1800 units of this component in production each year. The costs of making one
unit of this component are:
Direct material 7
Variable manufacturing overhead 6
Direct labor 4
Fixed manufacturing overhead 5
The fixed overhead costs are unavoidable and the unit cost is based on the present annual usage of 1800
units of the component. An outside supplier has offered to sell Coleman this component for 18 per unit and
can supply all the units it needs.

4. If Coleman buys the component from the outside supplier instead of making it, how much will net income
change?
5. Should Coleman make or buy the component?
6. Suppose Coleman could rent the machine to another company for 5000 per year. How would your
response change?
Migs Corporation currently manufactures all component parts used in the manufacture of various hand tools.
A steel handle is used in three different tools. The budgeted costs per unit based on 20,000 units are:
Direct material P6.00
Direct labor 4.00
Variable overhead 1.00
Fixed overhead 2.00
Total unit cost P13.00
Sans Steel, Inc. has offered to supply 20,000 units of the handle to Migs for P12.50 each delivered.
7. If Migs currently has idle capacity that cannot be used, accepting the offer will