Question

6. A manufacturer produces certain items at a labor cost of P315.00 each, material cost of P100.00 each and variable cost of P3.00 each. If the item has a unit price of P995.00, how many units must be produced each month for the manufacturer to break even if the monthly overhead is P461,600.00?

7. A company produces a certain commodity. The labor and material cost for each item produced is P112.00. Other variable cost is P67.00 per unit. The fixed monthly cost is P316,000.00. If each item is to be sold at P425.00, determine the number of units that must be produced per month in order to break-even.

8. A machine has a first cost of P200,000 with a scrap value of P25,000 at the end of its economic life of 10 years. Find its book value after 8 years using the Double Declining Balance Method.

9. An engineer bought an equipment for P500,000. Other expenses, including installation, amounted to P30,000. At the end of its estimated useful life of 10 years, the salvage value will be 10% of the first cost. Using the straight-line method of depreciation, what is the book value after 5 years?

10. An equipment costs P10,000 with a salvage value of P500 at the end of 10 years. Calculate the annual depreciation cost by sinking fund method at 4% interest.

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Answer 1

6.

Break even units = Overheads ÷ Contribution per unit

Contribution per unit = Revenue per unit - Variable cost per unit

Contribition per unit = 995 -(315 +100 + 3)= 577

Break even unit = 461600 ÷ 577 = 800 units

7.

Break even units = 316000 ÷ 246 = 1284.55 or 1285 units

For a company, more than 1285 units should be produced or manufacture per month to break even units.

Contribution per unit = 425 - (112 + 67) = 246

8.

Double declining balance method=

Depreciation rate = 1÷ usedul life × 100

= 1 ÷ 10 ×100  

= 10%

Double declining depreciation rate = 2× 10 = 20%

Value of asset after 8 years = 33554

Opening value	calculation	depreciation	Closing value
200000	200000×20%	40000	160000
160000	160000×20%	32000	128000
128000	128000×20%	25600	102400
102400	102400×20%	20480	81920
81920	81920×20%	16384	65536
65536	65536×20%	13107	52429
52429	52429×20%	10486	41943
41943	41943×20%	8389	33554

9.

First cost of asset = 500000 + 30000 = 530000

Salvage value = 530000 × 10% = 53000

Depreciation at straight line method =

(530000-53000) ÷ 10 =47700

Book value of asset after 5 years = 238500

Opening value	Depreciation	Closing value
477000	47700	429300
429300	47700	381600
381600	47700	333900
333900	47700	286200
286200	47700	238500

10.

Depreciation using sinking fund =

=  (Total value - salvage value) ÷ useful life

=  Salvage value ÷ ( 1+ interest rate) ^{number of periods}

^{= 500 ÷(1+.04) 10}

^{= 337.78 or 338}

=10000 - 338 = 9662

Depreciation per year = 9662 ÷ 10 = 966.