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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education