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6. PRODUCT ELIMINATION POINT BLACKPINK Company expects that sales will drop below the current level of 5,000 units per month. An income statement prepared for the monthly sales of 5,000 units show the following: Sales (5,000 @ P 3) P 15,000 Less: Variable costs (5,000 @ P 2) Fixed costs Profit P 10,000 5,000 15,000 Nil If plant operations are suspended, a shutdown cost (i.e., plant maintenance and taxes) of P 2,000 per month will remain as incurred. Since there is no immediate possibility of profit under present conditions, the problem of the company is just how to minimize the loss. REQUIRED: A) Determine the shutdown point in units. B) Should the company continue or shut down operations if sales next month are expected to be: 1) 4,000 units? 2) 2,000 units? 3) 3,000 units?

6. PRODUCT ELIMINATION POINT BLACKPINK Company expects that sales will drop below the current level of 5,000 units per month. An income statement prepared for the monthly sales of 5,000 units show the following: Sales (5,000 @ P 3) P 15,000 Less: Variable costs (5,000 @ P 2) Fixed costs Profit P 10,000 5,000 15,000 Nil If plant operations are suspended, a shutdown cost (i.e., plant maintenance and taxes) of P 2,000 per month will remain as incurred. Since there is no immediate possibility of profit under present conditions, the problem of the company is just how to minimize the loss. REQUIRED: A) Determine the shutdown point in units. B) Should the company continue or shut down operations if sales next month are expected to be: 1) 4,000 units? 2) 2,000 units? 3) 3,000 units?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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6. PRODUCT ELIMINATION POINT BLACKPINK Company expects that sales will drop below the current level of 5,000 units per month. An income statement prepared for the monthly sales of 5,000 units show the following: Sales (5,000 @ P 3) P 15,000 Less: Variable costs (5,000 @ P 2) P 10,000 Fixed costs Profit 5,000 If plant operations are suspended, a shutdown cost (i.e., plant maintenance and taxes) of P 2,000 per month will remain as incurred. Since there is no immediate possibility of profit under present conditions, the problem of the company is just how to minimize the loss. REQUIRED: A) Determine the shutdown point in units. B) Should the company continue or shut down operations if sales next month are expected to be: 1) 4,000 units? 2) 2,000 units? 3) 3,000 units? Product P S Y 7. SELL or PROCESS FURTHER RED VELVET Company produces products P, S and Y for a joint cost of P 200,000. Each product may be sold at its split-off point or processed further. Additional processing costs are entirely variable. Relevant data are given below: Sales Value at Split-Off Additional Processing Costs 15,000 Nil P 100,000 200,000 50,000 P 350.000 P 40,000 50,000 60,000 P 150.000 Final Sales Value P 200,000 240,000 90,000 P 530.000 REQUIRED: A) Which product(s) should the company sell at split-off point? B) If the company can only sell all the products at split-off point or process all the products further beyond the split-off point, then which option is recommended? 8. SCRAP or REWORK 2NE1 Company has 5,000 obsolete truck parts that are carried in inventory at a cost of P 50,000. The company is faced with a decision whether to scrap the parts or modify them: REQUIRED: Should 2NE1 Company modify or scrap the parts? > If the parts were junked, the company would realize only 10% of its cost. Should the company modify the parts, it will spend P 10,000 for materials, P 2,000 for direct labor, and overhead equal to 40% of prime costs. The new parts will sell for P 25,000 in the market.
Transcribed Image Text:6. PRODUCT ELIMINATION POINT BLACKPINK Company expects that sales will drop below the current level of 5,000 units per month. An income statement prepared for the monthly sales of 5,000 units show the following: Sales (5,000 @ P 3) P 15,000 Less: Variable costs (5,000 @ P 2) P 10,000 Fixed costs Profit 5,000 If plant operations are suspended, a shutdown cost (i.e., plant maintenance and taxes) of P 2,000 per month will remain as incurred. Since there is no immediate possibility of profit under present conditions, the problem of the company is just how to minimize the loss. REQUIRED: A) Determine the shutdown point in units. B) Should the company continue or shut down operations if sales next month are expected to be: 1) 4,000 units? 2) 2,000 units? 3) 3,000 units? Product P S Y 7. SELL or PROCESS FURTHER RED VELVET Company produces products P, S and Y for a joint cost of P 200,000. Each product may be sold at its split-off point or processed further. Additional processing costs are entirely variable. Relevant data are given below: Sales Value at Split-Off Additional Processing Costs 15,000 Nil P 100,000 200,000 50,000 P 350.000 P 40,000 50,000 60,000 P 150.000 Final Sales Value P 200,000 240,000 90,000 P 530.000 REQUIRED: A) Which product(s) should the company sell at split-off point? B) If the company can only sell all the products at split-off point or process all the products further beyond the split-off point, then which option is recommended? 8. SCRAP or REWORK 2NE1 Company has 5,000 obsolete truck parts that are carried in inventory at a cost of P 50,000. The company is faced with a decision whether to scrap the parts or modify them: REQUIRED: Should 2NE1 Company modify or scrap the parts? > If the parts were junked, the company would realize only 10% of its cost. Should the company modify the parts, it will spend P 10,000 for materials, P 2,000 for direct labor, and overhead equal to 40% of prime costs. The new parts will sell for P 25,000 in the market.
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