Republic of the Philippines
Batangas State University
College of Accountancy, Business, Economics and
International Hospitality Management
Accountancy and Management Accounting Department
STRATEGIC BUSINESS ANALYSIS
Semestral Output
General Directions:
Read each of the problems carefully. Provide your answers with supporting computations. You
may encode your answers in a Microsoft word format (to be converted in pdf format) or write in
a clean sheet of paper (bond paper, yellow paper) to be submitted not later than December 23,
2020 (Wednesday).
I will post an assignment in our classroom where you will submit your output. If you are to
include discussions/ explanations coming from internet or other references, kindly cite your
sources at the end of your output.
I will also send Google form where all the final answers per each problem will be summarized. Both the
final answers in the Google Form as well as the submitted supporting computations will be considered in
grading your semestral output.
In grading your supporting computations, aside from arriving at the correct answer, the following matrix
will be used:
Criteria
Topic
Organization
Quality of
Information
Grammar,
usage,
Mechanics,
Spelling
Interest Level
Neatness
Timeliness
Total
Exemplary
6-7
Yes
Directly relevant
Good
organization;
points are
logically
ordered; sharp
sense of
beginning and
end
Supporting
details specific
to subject
No errors
Vocabulary is
varied;
supporting
details vivid
Tidy; clean
neatly bound in a
repoet cover;
illustrations
provided
Report on time
Accomplished
4-5
Yes, but
Somewhat
relevant
Organized points
are somewhat
jumpy; sense of
beginning and
ending
Developing
2-3
No, but
Remotely relevant
Beginning
0-1
No
Totally unrelated
Some
organization;
points jump
around; beginning
and ending are
unclear
Poorly organized
no logical
progression;
beginning and
ending are vague
Some details are
non-supporting to
the subject
Only one or two
errors
Details do not
support topic
Unable to find
specific details
More than two
errors
Numerous errors
distract from
understanding
Vocabulary is
varied supporting
details useful
Vocabulary is
unimaginative;
details lack color
Basic vocabulary
needs descriptive
words
Legible writing
well-formed
characteristics
Legible writing,
some ill formed
letters, print too
small or too large;
papers
Report two class
period late
Illegible writing;
loose pages
Report one class
period late
Report more than
one week late
Problem I
Alaska Ski Company recently expanded its manufacturing capacity to allow it to produce up to 15,000
pairs of cross-country skis of either the mountaineering model or the touring model. The sales
department assures management that it can sell between 9,000 and 13,000 pairs (units) of either product
this year. Because the models are very similar, Alaska Ski will produce only one of the two models. The
following data were compiled by the accounting department.
Selling price per unit
Variable cost per unit
Mountaineering
P 88.00
52.80
Touring
80.00
52.80
Fixed costs will total P 369,600 if the mountaineering model is produced but will be only P 316,800 if the
touring model is produced. Alaska Ski Company is subject to a 40% income tax rate.
1. If Alaska Ski Company desires an after-tax net income of P 24,000, how many pairs of touring
model skis will the company have to sell?
2. The total sales revenue at which Alaska Ski Company would make the same profit or loss
regardless of the ski model it decided to produce is
3. How much would the variable cost per unit of the touring model have to change before it had the
same breakeven point in units as the mountaineering model?
4. If the variable cost per unit of touring skis decreases by 10%, and the total fixed cost of touring
skis increases by 10%, the new breakeven point will be
5. If the Alaska Ski Company sales department could guarantee the annual sale of 12,000 skis of
either model, what model would Alaska produce to be more profitable?
i
Problem II
Selected sales and operating data for three divisions of three different companies are given below:
Sales
Average operating assets
Net operating income
Minimum required rate of
return
Division A
P 6,000,000
1,500,000
300,000
15%
Division B
P 10,000,000
5,000,000
900,000
18%
Division C
P 8,000,000
2,000,000
180,000
12%
Required:
1. Compute the return on investment (ROI) for each division, using the formula stated in terms of
margin and turnover.
2. Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that would yield a rate of
return of 17%.
a. If performance is being measured by ROI, which division or divisions will probably
accept the opportunity? Reject? Why?
b. If performance is being measured by residual income, which division or divisions will
probably accept the opportunity? Reject? Why?
Problem III
Clawie Cosmetics has three major product line, Hair Care, Facial Care and Skin Care. The following
statement of profit or loss for the year ended April 30, 2019, was prepared by product line, using the full
cost allocation.
Explanatory data are as follows:
(a) Cost of goods sold. The company’s inventories of materials and finished products do not vary
significantly from year to year. Factory overhead was applied to products at 120% of direct labor costs.
The factory overhead costs for the year were as follows:
Variable indirect labor and supplies
Variable employee benefits on factory labor
Supervisory salaries and related benefits
Plant occupancy cost
P 50,000
30,000
100,000
P 180,000
Clawie Cosmetics
Statement of Profit or Loss
For the Year Ended April 30, 2019
(in thousands)
Sales in pounds
Revenues from sales
Cost of goods sold:
Materials
Direct labor
Factory overhead
Total cost of goods sold
Gross profit
Commercial expenses:
Marketing expenses:
Advertising
Commissions
Sales salaries and related benefits
Total marketing expense
General and administrative expenses
Licenses
Salaries and related benefits
Total general and administrative expenses
Total commercial expenses
Operating income
Hair Care
2,000
P 1,000
Facial Care
500
P 400
SkinCare
500
P 200
Total
3,000
P 1,600
330
90
108
528
472
160
40
48
248
152
100
20
24
144
56
590
150
180
920
680
50
50
30
130
30
40
20
90
20
20
10
50
100
110
60
270
50
60
110
240
232
30
25
55
145
P
7
20
15
35
85
(29)
100
100
200
470
210
P
P
P
Explanatory data are as follows (continuation):
There was no over- or – underapplied factory overhead at year-end.
a. Advertising. The company has been unable to determine any direct causal relationship between
the level of sales volume and the level of advertising expenditures. However, because
management believes advertising is necessary, an annual advertising program has been
implemented for each product line, independent of the other.
b. Commissions. Sales commissions are paid to the sales force at the rate of 5% on the hair care and
10% on the facial care and skin care.
c. Licenses. Various licenses are required for each product line, renewed annually for each product
line at a fixed amount.
d. Salaries and related benefits. Sales and general and administrative personnel devote time and
effort to all product lines. Their salaries and wages are allocated on the basis of management’s
estimates of time spent on each product line.
e. Fixed factory overhead, salaries and related benefits for sales and general and administrative
personnel are not traceable to individual lines on any objective basis.
Required: Prepare a product-line income statement, using the contribution margin approach.
Problem IV
ACE Corporation makes standard-size 2-inch paper clips, which it sells for P 155 per thousand. Jane
Valdez, the major stockholder, manages the inventory and finances of the company. She estimates sales
for the following months to be:
January
P263,500
(1,700,000 paper clips)
February
P186,000
(1,200,000 paper clips)
March
P217,000
(1,400,000 paper clips)
April
P310,000
(2,000,000 paper clips)
May
P387,500
(2,500,000 paper clips)
Last year ACE Corporation's sales were P 175,000 in November and P 232,500 in December (1,500,000
paper clips).
Ms. Valdez is preparing for a meeting with Peninsula Banking Corporation to arrange the financing for
the first quarter. Based on her sales forecast and the following information she has provided, you have to
prepare a monthly cash budget, a monthly and quarterly pro forma income statement, a pro forma
quarterly balance sheet, and all necessary supporting schedules for the first quarter.
Past history shows that ACE Corporation collects 50 percent of its accounts receivable in the normal 30-
day credit period (the month after the sale) and the other 50 percent in 60 days (two months after the
sale). It pays for its materials 30 days after receipt. In general, Ms. Valdez likes to keep a two-month
supply of inventory in anticipation of sales. Inventory at the beginning of December was 2,600,000 units.
(This was not equal to her desired two-month supply.)
The major cost of production is the purchase of raw materials in the form of galvanized steel wire, which
are cut, bended, and finished. Last year raw material costs were P 52 per 1,000 paper clips, but Ms.
Valdez has just been notified that material costs have risen, effective January 1, to P 60 per 1,000 paper
clips. ACE Corporation uses FIFO inventory accounting. Labor costs are relatively constant at P 20 per
thousand paper clips, since workers are paid on a piecework basis. Overhead is allocated at P10 per
thousand units, and selling and administrative expense is 20 percent of sales. Labor expense and overhead
are direct cash outflows paid in the month incurred, while interest and taxes are paid quarterly.
The corporation usually maintains a minimum cash balance of P 25,000, and it puts its excess cash into
marketable securities. The average tax rate is 40 percent, and the company usually pays out 50 percent of
net income in dividends to stockholders. Marketable securities are sold before funds are borrowed when a
cash shortage is faced. Ignore the interest on any short-term borrowings. Interest on the long-term debt is
paid in March, as are taxes and dividends.
As of year-end, the ACE Corporation balance sheet was as follows:
ACE Corporation
Balance Sheet
December 31, 2006
ASSETS
Current assets:
Cash
Accounts receivable
Inventory
Total current assets
Plant and equipment, net of accumulated depreciation of P200,000
Total Assets
P
30,000
320,000
237,800
587,800
800,000
P1,387,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
Long-term debt, 8%
Common stock
Retained earnings
Total Liabilities and Stockholders’ Equity
P
93,600
400,000
504,200
390,000
P1,387,800
1. The budgeted production respective to each month of the first quarter of the coming year are:
2. The amount of accounts payable paid in March for the purchase of materials is:
3. The expected cash collections on accounts receivable in the month of February are:
4. The amount of accounts receivable outstanding as of March 31, 2007 is:
5. The cost of goods sold for the first quarter of the coming year amounts to:
6. The total cash and marketable securities as of January 31 will be:
7. The expected net income during the first quarter of the coming year is:
Problem V
Nogo Motors, Inc., has several divisions that often purchase component parts from each other. The
company is fully decentralized and each division is selling to other divisions or in outside markets. Each
division makes its decision on where to buy and sell in conformity with divisional goals. Igo Division
purchases most of its airbags from Letgo Division. The managers of these two divisions are currently
negotiating a transfer price for the airbags for next year, when the airbag will be standard equipment on
all Igo vehicles. Letgo Division prepared the following financial information for negotiating purposes:
Costs of airbag as manufactured by Letgo:
Direct materials costs
Direct manufacturing labor costs
Variable manufacturing overhead costs
P 40
55
10
Fixed manufacturing overhead costs
Variable marketing costs
Fixed marketing costs
Fixed administrative costs
Total costs
25
5
15
10
P 160
Letgo Division is currently working at 80% of its capacity. Letgo’s policy is to achieve an operating
income of 20% of sales.
There has been a drop in price for airbags. The current market price is P 130 per unit.
Required: Consider each of the requirements independently.
If Letgo Division desires to achieve it’s operating income goal of 20% of sales, what should be
the transfer price?
Assume that Letgo Division wants to maximize its operating income, what transfer price would
you recommend that the Letgo Division negotiate?
What is the transfer price that you believe Letgo Division should charge if overall companyoperating income is to be maximized?
1.
2.
3.
Problem VI
Brother Paul’s Burger House no. 16 has fallen on hard times and is about to be closed. The following
figures are available for the period just ended:
Sales
Cost of sales
Building occupancy costs:
Rent
Utilities
Supplies used
Wages
Miscellaneous
Allocated corporate overhead
P 205,000
67,900
36,500
15,000
5,600
77,700
2,400
16,800
All employees except the Burger House manager would be discharged. The manager, who earns P
27,000 annually, would be transferred to Burger House no. 19 in a neighboring suburb. Also, no. 16's
furnishings and equipment are fully depreciated and would be removed and transported to Brother Paul’s
warehouse at a cost of P 2,800.
Required:
A. What is Burger House no. 16's reported loss for the period just ended?
B. Should the Burger House be closed? Why?
C. Would Brother Paul’s likely lose all P 205,000 of sales revenue if Burger House no. 16 were
closed? Explain.
Problem VII
Panfilo Manufacturing has budgeted sales of P 300,000 with the following budgeted costs:
Direct materials
Direct manufacturing labor
Factory overhead
Variable
Fixed
Selling and administrative expenses
Variable
Fixed
P 60,000
40,000
30,000
50,000
20,000
30,000
Compute the average markup percentage for setting prices as a percentage of:
a.
b.
c.
d.
The full cost of the product
The variable cost of the product
Variable manufacturing costs
Total manufacturing costs
Problem VIII
A. Evangelista is the general manager for JR Chemical Supply Company. The following is the company’s
gross profit data for November, in thousands of pesos:
Actual
Budget
Sales
P 14,005
P 12,600
Cost of goods sold
11,323
9,850
Gross profit
P 2,682
P 2,750
Before receiving the statement, Evangelista knew that sales were above budget for the month and that the
effect of recent price increases on most products would be realized this month. Upset on finding that
income results were below budget while sales were more than 10% above budget, Evangelista asked the
Accounting Department for an explanation. The Accounting Department looked at the detailed budget
and found the following data:
Product
1
2
3
4
Sales in
Pound (in
thousands)
2,000
5,000
7,000
4,000
18,000
Sales
Cost of
Gross
Price per Goods Sold
Profit (in
Pound
per Pound Thousands)
P .975
P .60
P 750
.762
.65
560
.20
.20
0
1.50
1.14
1,440
P 2,750
(P 2,750 / 18,000 = P 0.1528 budgeted gross profit per pound)
Product
1
2
3
4
Sales in Pound
(in thousands)
2,845
3,280
7,340
4,320
17,785
Sales Price per
Pound
P .735
1.023
.195
1.650
Required: Compute for the following:
a. Sales price variance
b. Cost Price variance
c. Sales quantity variance
d. Cost quantity variance
e. Sales mix variance
f. Final Sales Volume Variance
Sales in Pesos
(in thousands)
P 2,091
3,355
1,431
7,128
P 14,005
Cost of Goods
Sold per Pound
P 1,692
3,240
991
5,400
P 11,323
Gross Profit (in
thousands)
P 399
115
440
1,728
P 2,682