AcMNGT 321 EXERCISES

Short-Term, Non-Routine Decisions March 16, 2021

INSTRUCTIONS:
• Group yourselves (7 groups of 3 members, and 1 group of 2 members).
• Give what are required in each case that follow. In every decision you make, support it with computations. Show
your computations on yellow/white paper. Label and properly identify (encircle or box) your final answer. Make a
clean, clear, and coherent record of your answers.
• Be prepared for an oral presentation of your answers, next meeting.

NO. 1 Pocahontas operates a chain of bookstore with branches in Davao City, Cebu City, and Bacolod City. A summary
of operating results of the three branches during a typical month is shown below:
Davao City Cebu City Bacolod City Total
Sales ₱300,000 ₱400,000 ₱500,000 ₱1,200,000
Costs and expenses:
Variable ₱120,000 ₱160,000 ₱200,000 ₱ 480,000
Direct fixed costs 80,000 110,000 70,000 260,000
Allocated home office costs 110,000 100,000 140,000 350,000
Total costs and expenses ₱310,000 ₱370,000 ₱410,000 ₱1,090,000
Operating profit (loss) (₱10,000) ₱ 30,000 ₱ 90,000 ₱ 110,000

Like in the previous months, Pocahontas observed that the Davao City Branch operated at a loss. Due to this, Pocahontas is
considering to close the Davao City Branch, hoping that the loss would be eliminated.

Should Pocahontas stop operating the Davao City Branch because of its operating loss?

NO. 2 Mulan Company produces and sells 200 units of Product Jian which represents only 80% of its normal capacity of
250 units. Its regular selling price is ₱500 per unit and its manufacturing, selling and administrative costs are as follows:
Mulan Company has been making its own sheath since it started operating. If it would continue to produce these sheaths, the
company expects to incur the following costs:
Materials ₱100
Labor 120
Variable overhead 80
Fixed overhead (₱6,000 / 200 units) 30
Variable SAE 70
Fixed SAE (₱4,000 / 200 units) 20
Total unit cost ₱420

Mulan Company received an order from a provincial distributor for 30 units. The customer asks for a special discount of
30%. It is expected that the company will incur no additional selling and administrative costs.

Should the company accept the special order?

NO. 3 Tinkerbell Products which produces chipboard, newsprint and kraft paper from pulp which it buys at ₱5 per kilo. On
the average, the company uses 100,000 kilos of pulp and incurs conversion cost of ₱500,000 per month.

Monthly production and sales price figures for each product are as follows:
Production Sales Price
Chipboard 200,000 sheets ₱ 2.40 per sheet
Newsprint 50,000 reams ₱20.00 per ream
Kraft paper 30,000 sheets ₱ 1.75 per sheet

The total joint cost is allocated based on the weight (in kilos) of the products manufactured during the month. Assume that
the allocated results are: 15% of the total joint cost is allocated to chipboard, 80% to newsprint, and 5% to kraft paper.

One of the joint products, the chipboard, may be processed further to produce a photo frame stiffener which can be sold at
₱3.50 per unit. Each sheet of chipboard may be converted into one stiffener at a cost of sixty centavos.

Should the chipboard be sold at the split off point or converted into a photo frame stiffener?
NO. 4 Pinocchio Enterprises sells three products, P, N, and C. Mr. Peter Pan, the proprietor, is concerned about the losses
incurred by P, and is considering to discontinue its production and sales.

Sales and costs data about Mr. Peter Pan’s three products are as follows:
P N C Total
Sales price per unit ₱ 5 ₱ 7 ₱ 9 ₱21
Variable cost per unit 3 2 7 12
Contribution margin per unit ₱ 2 ₱ 5 ₱ 2 ₱ 9
Fixed cost per unit 3 2 1 6
Profit (loss) per unit (₱ 1) ₱ 3 ₱ 1 ₱ 3

Fixed costs are allocated among the three products based on the floor area they occupy

Should Pinocchio Enterprises continue or discontinue the production of Product P?

NO. 5 Raya Company, a manufacturer of furniture sets, is considering to purchase the seat cushions needed for its chairs.
The expected purchase price of these seat cushions is ₱80 per unit.

Raya Company has been making its own seat cushions since it started operating. If it would continue to produce these
cushions, the company expects to incur the following costs:
Raw materials ₱25
Direct labor 30
Variable overhead 10
Fixed overhead (based on the average production
requirement of 10,000 units) 20
Total production cost per unit ₱85

a) Compute for the net advantage/disadvantage of making the seat cushions.

NO. 6 Missy Poppins operates a snack counter selling sandwiches and softdrinks to students of the school across her store,
as well as to her neighbors and passers-by. Each unit is composed of a sandwich and a cup of softdrinks which is sold at a lot
price of ₱25. Variable cost amounts to ₱16 per unit. Under normal conditions, Missy Poppins sells an average of 3,000 units
per month, during which she incurs the following fixed costs:
Rent ₱ 3,000
Allocated cost of utilities 2,000
Salary of sales clerk 1,500
Janitor’s salary 1,000
Security agency’s billing 2,500
Total ₱10,000

A joint strike of teachers and students which started the other day dramatically reduced the sales of Missy Poppins’ snack
counter to only 800 units because his customers would now be composed only of his neighbors and passers-by. Accordingly,
the strike would last for about a month. Missy Poppins is considering to shut down operations for one month to avoid incurring
losses due to the reduced sales volume. She notes that if she shuts down her operations, her share in the allocated cost of
utilities would be reduced to ₱500, and she could avoid incurring salary of the sales clerk who would be asked to take a forced
leave without pay while the snack counter is closed. All the other fixed costs would be incurred despite the discontinuance
of operations.

a) Compute for the shutdown point in units and in pesos.

NO. 7 Simba Company produces and sells three product lines – A, B, and C. Production and sales data about these three
product lines are given below:
A B C
Contribution margin per unit ₱5 ₱ 12 ₱8
Sales or market limit 10,000 units 20,000 units none
Machine hours required to produce
one unit 1 hour 4 hours 12 hours
Total machine hours available = 120,000 hours

What is the best product combination? (determine the number of units for each product)
a) if no market limit exists.
b) if there is a market limit for B.
NO. 8 Moana Company, produces a product called Lilo. The company buys materials needed to make a Lilo from different
suppliers in Cotabato at ₱1.50 each. To convert the materials into Lilo, the same are processed for about 30 minutes.
Processing costs, composed of labor and factory overhead average at ₱0.75 per unit. Moana sells the product at ₱4.00 per
unit.

Moana’s product may be sold as Lilo, or it may be processed further to come up with another product called Stitch. Stitch
has proven to be highly salable and commands a price of ₱5.25 per unit. Materials, labor, and overhead costs required to
convert Lilo into Stitch amounts to ₱0.85 per unit. Moana is contemplating to stop selling Lilo but instead concentrate on
selling Stitch.

Should Moana push through with her plan?

. . .END. . .

One night four college kids stayed out late, partying and having a good time. They paid no mind about the
final exam they had the next day for which they didn’t study. In the morning though panic took over and they
hatched a plan to get out of taking the exam. They covered themselves with grease and dirt and went to the
Dean’s office. Once there, they said they had been to a wedding the previous night and on the way back they
got a flat tire and had to push the car back to campus so they couldn’t make it on time for the exam and they
hoped they would get another chance at taking it some other day.

The Dean listened to their story without saying a word. When the students finished telling their story he
offered them a chance to take the test three days later.

They thanked him and accepted his offer. And for the next three days, the four students studied without
unnecessary breaks. They studied as hard as never before, only taking breaks to eat and sleep. Finally, after
three days the four students were confident they knew everything and that nothing could surprise them.
They walked into the Deans office confident and determined they will ace the exam.

The Dean welcomed them and told them they will have to take the exam in separate rooms and that they
would have to leave all of their things in a special locker in his office since there are no professors to watch
over them. They were fine with that since they had all studied hard. Finally, each one of them sat in his own
classroom with a pen and exam waiting for them on the table. Everything was fine until they saw the exam
which had only two questions:
• Your Name __________ (1 Point)
• Which tire burst? (99 Points)
a. Front Left
b. Front Right
c. Back Left
d. Back Right