Student no.: 20XX-XXXXXX
Year level: 3rd or 4th year
Program: BSA, BSMA, or BSAIS
Instructions:
Answer the requirements of the cases below per item/number on a separate MS Word. Type
your student no., year level, and program, as shown above. Convert the word file to PDF,
name it “SURNAME, Part 2”, and attach it on the assignment tab. DON’T FORGET TO TURNIN your work. Time allotted is only 2 hours (1pm – 3pm).
Rubrics:
CONTENT
GRAMMAR
COHERENCE
65%
15%
20%
TOTAL
100%
CASE NO. 1
Celestials Inc. is a manufacturer of a single product and it started to develop a budget for
the next coming year. Celestials’ senior management is reviewing how costs are calculated
since the cost of goods sold is considered a very significant item.
In addition, senior management wants to develop a budgeting system that motivates
employees to work toward the corporate shared goals. Celestials has incurred the following
costs to make 100,000 units during the month of February:
Direct materials
Direct labor
Variable production overhead
Variable selling costs
Fixed production overhead
Fixed selling costs
P200,000
20,000
10,000
40,000
100,000
150,000
Using absorption costing, Celestials Inc.’s February 1 inventory consisted of 10,000 units
valued at P36,000. Total fixed costs and variable costs per unit have not changed during the
past few months. In the month of February, Celestials sold 106,000 units at P6 per unit.
REQUIRED:
1.
Using absorption costing, calculate Celestials’ February manufacturing cost per unit,
Celestials’ February 28 inventory value, and Celestials’ February net income.
2.
Using variable costing, calculate Celestials’ February manufacturing cost per unit,
Celestials’ February 28 inventory value, and Celestials’ February net income.
3.
Identify and discuss one reason why the income calculated under absorption and
variable costing differs.
4.
Identify and explain one method the top managers can take to restrict the Production
Manager from taking advantage of budgetary slack.
5.
Identify one strength and one weakness each of authoritative budgeting and
participative Budgeting. Identify and explain which of these budgeting methods will work best
for Celestials Inc.
CASE NO. 2
Hogwarts Manufacturing, with an effective income tax rate of 40%, is experiencing
tremendous growth in demand for its products. The management has discussed the
distribution channel as a hindrance to the company’s ability to keep up with increasing
demand.
Manufacturing facilities have excess capacity to meet growing demand, but the firm will have
difficulty getting the products to the customers. The supply chain manager has suggested
the firm to purchase a new building to expand the storage area near its distribution areas.
The company found that a new building will cost P37,500,000. The new building will have
an estimated useful life of 10 years with no salvage value. Operating the new building will
cost approximately P1,500,000 per year but the new building will allow the firm to increase
sales significantly.
Distribution managers believe that the new building will increase productivity to allow for
additional sales of 500,000 units each year. Marketing managers projected that the demand
for the firm’s product will increase 750,000 units each year. The contribution margin for the
firm’s products is P82.50.
REQUIRED:
1.
Define capital budgeting. What two steps should Hogwarts take in evaluating and
implementing the project?
2.
Identify the relevant cash flows for the project on both a pretax and an after-tax basis.
Show your calculations.
3.
Define Net Present Value (NPV) and Internal Rate of Return (IRR).
4.
Identify one assumption of NPV and one assumption of IRR and discuss the decision
criteria used in NPV and IRR to determine acceptable projects.
5.
Define the payback method. Identify and explain two disadvantages of the
payback method.