Activity 6 ( Break even analysis and Present economy )

To be Submitted next meeting.

1. A firm has a capacity to produce 1,000,000 of product per year. At present, it is able to
produce and sell only 600,000 units yearly at a total income of P720,000. Annual fixed
costs are P250,000 and the variable cost per unit are P0.70.
a.) Calculate the firm’s annual profit or loss for this production
b.) How many units should be sold to break-even
c.) If the firm can increase it sales to 80% of full capacity what will its profit or loss be,
assuming that its income and variable costs per unit remain constant.
2. A certain manufacturing operation is now being done manually. The labor cost per unit is
P1.80, and the annual fixed cost, including tool depreciation chargeable to this product,
is P2,000 a year. A machine is now available to for doing the same task at a cost of
P40,000 with a salvage value of P5,000 at any time and a fixed operation cost excluding
depreciation, P3,000 a year. Using this machine, the labor cost will be reduced to P0.50
per unit. If money is worth 12% to the company and the machine has an estimated life of
8 years, determine the number of units per year for which the two method will break-
even.
3. A shoe manufacturer produces a pair of shoes at a labor cost of P8.50 and a material
cost of P23.50. The fixed charges of the business are P10,125 a month and the variable
costs are P2.50 a pair. If the shoes sell to retailers for P48 a pair, how many pairs must
be produced and sold each month for the manufacturer to break-even.
4. A civil engineer produces a certain construction material at a labor cost of P16.20 per
piece, material cost of P38.50 per piece and a variable cost of P7.40 per piece. The
fixed charges on the business is P100,000 a month. If the product is sold for P95.00
each, how many pieces must be made and sold each month to break-even?
5. A machine parts to be machined may be made either from an alloy of aluminum or steel.
There is an order for 8,000 units. Steel costs P3.80 per kg, while aluminum cost P8.70
per kg. if the steel is used, the steel per unit weights 110 grams. When steel is used, 50
units can be produced per hour; for aluminum, 80 units per hour with the aid of the tool
costing P640, which will be useless after the 8,000 units are finished. The cost of the
machine and the operator is P10.80 per hour. If all other costs are identical, determine
which material will be more economical.
6. Complying with all government housing regulations are requirements, the employee’s
union of a certain firm has the option to purchase either two sites, each having a area of
19 hectares (180,000 sq.m) of undeveloped land. The first singly owned, would cost P20
sq.m, but would need a roadway system, including the access road, 4,000m long, at a
cost of P110 per meter. Additional development expenses would be P60,000 to
subdivide the grade into 320 house lot, and another P32,000 for a hollow block fence
and security gates.
The second site consists of three lots, separate owned with a total area of 18 hectares; 7
hectares at P25 a sq.m. 5 hectares at P21 sq.m; and 6 hectares at P14 a sq.m. the road
system for this site would be only 3,200 meters long at P100 per meter, but needs two
 box culverts each costing P25,000. Lot grading would be P35,000; fencing and security
gates P24,000.
7. A man decided to paint his house himself after office hours, he can paint 25sq.m per
hour on the average. It takes him 15 mins to prepare his material and 20 mins to keep
the materials after painting. If there are 900 sq.m to be painted, how long will it take him
to paint to paint his house if he devotes 2 and one half hours each day.

8. A new civil engineer failing to complete his contract worth P70,000 in a specified time is
compelled to pay the penalty of ½ of 1% per day for the first 6 days of the extra time
required, and for each additional day thereafter, the stipulated penalty is increased by
10% of P35.00 each day. If he pays a total penalty of P6,160, by how many days did he
overrun his contract time.
9. The direct labor cost and material cost of a certain product are P300 and P400 per unit
respectively, fixed chargers are P100,000 per month and other variable cost are P100
per unit. If the product is sold at P1,200 per unit, how many units must be produced and
sold to break-even?
10. The cost of producing a transistor radio set consist of P230 for labor and P370 fro
material. The fixed charger in operating the plant is P1,000.00 per month. The variable is
P10.00 per set. The radio set can be sold for P750 each. Determine how many units
must be manufactured per month to break-even?
11. A factory engaged in the fabrication of an automobile part with a production capacity of
P700,000 units per year is only operating at 62% capacity due to the unavailability of the
necessary foreign currency to finance the importation of their raw materials. The annual
income is P430,000. Annual fixed cost are P190,000 and variable cost are P0.35 per
unit.
a. What is the current profit or loss?
b. What is the break-even point?
12. A manufacturing firm maintains one product assembly line to produce signal generators.
Weekly demand for the generators is 35 units. The line operates for 7 hours per day, 5
days per week. What is the maximum production line per unit in hours required of the
line to meet the demand?
13. The ore of a gold mine in the mountain province contains on the average, 0.5 gram of
gold per ton. One method of processing cost P1,650 per ton recovers 93% of the gold,
while another method cost only P1,500 per ton and recovers 81% of the gold. If gold can
be sold at P8,500 per gram, which method is better and by how much?
14. An engineer bidding on the asphalting of a 7-km stretch of road is confronted with the
problem of choosing between two possible sites. At site A, the average hauling distance
s 2.5 km; monthly rental would be P3,500 and the cost of installing and dismantling the
equipment would be P17,000. At site B, the average hauling distance is 3.25km ; the
monthly rental would be P650 and the cost of installing the dismantling the equipment
would be P7,200. The asphalt mix is to be hauled by the sub-contractor at P0.42 per
cu.m per km of haul. At site A it would be necessary to hire flagmen at P15.00 each per
workday. The job can be completed in 30 weeks or 7 months working 6 days per week.
 The project requires 16.67 cu.m of asphalt mix per km of road. Which site should he
choose and how much lower would his bid price be if he made the better choice?
15. A certain manufacturing company received an order for producing 100,000 pieces of a
certain machine part. A jig is necessary for production and two designs are presented
whose properties are as follows:

Jig A Jig B

Estimated life 100,000pcs. 100,000pcs.

First cost P5,000 P4,200

Hourly wage of operator P30.00 P25.00

Number of pieces produced per hour 100 80

If the only consideration is economy of operation, determine which jig should be used.