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ADM202MidtermExam.pdf

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ADM 202/MGMT 203 MIDTERM EXAMINATION Prepared by: Lorie Ann Quillopo- Barry, CPA, PhD October 16, 2021

PROBLEM 1:

After getting their retirement pension, Mary and Joseph decided to open their own child

care center which they called “ Good Shepherd Center”. The center is operating from 8:00 am to

5:00 pm from Monday to Friday. In case of emergency, parents may extend up to 7:00 pm with

an additional charge. The center charges a fee of P5,000 per month for each child. Parents will

pay an additional fee of P50 per hour for each child if they are staying beyond 5:00 pm.

The following costs are incurred in the operation of the child center:

1. Annual property insurance of P30,000. 2. The couple purchased the home at P2,000,000 and made improvements of P1,000,000.

Annual depreciation expense is determined at P125,000 for an estimated useful life of 20

years.

3. The center provides lunch and two (morning and afternoon) snacks for the children. The cost of the meal and snack is P100 per child. The center has currently 10 children as

regular customers per day.

4. The center employed one staff with a daily rate of P350. Mary and Joseph are also actively involved in managing the center. Use 255 working days in a year.

5. The utility costs when the center is not operational is at P300. Average utility costs per month during the first year of operation is at P3,000.

6. The cost of writing and drawing materials per child on a monthly basis is at P50.

The washer and dryer stop functioning within the first week of operation. Both appliances

were outdated and had been in the couple's possession for a long time. The old appliances cost

P40,000 in total. While a laundry room was not initially required, it grew increasingly vital as the

children's dirty clothes, blankets, and sheets became more stained. For P3,000 per month, a

neighboring company can clean garments for the facility, including pick-up and delivery.

Alternatively, the Good Shepherd can take their clothing to a three-mile-away laundromat once a

week (one way). P40 per mile is the applicable mileage rate. They can do their own laundry at a

cost of P500 per week. Use 52 weeks in a year.

Detergent and fabric sheets are not included in the self-service option. To utilize the

laundromat, the couple would need to purchase these items. Sunshine Supermart's bulk washing

products would set you back P2,000 every quarter.

The facility could also buy a washer and dryer as a last resort. The appliances are priced

at P15,000 for the washer and P30,000 for the dryer. The installation of the additional

accessories for both appliances costs P2,000. The installation of the appliances is free. Both

appliances should last at least 5 years. The washer, according to the maker, will boost annual

energy costs by P5,000. The dryer will result in a P10,000 rise in energy bills per year. The

center needs some assistance in decision making and evaluation. They have contacted their

accountant to provide some advice.

Requirements:

1. Identify the type of costs for each of the costs discussed in the case. (10 points)

Type of Costs

In relation to volume of activity

In relation to the product/service

1. Annual property insurance of P30,000.

2. Annual depreciation expense is determined at P125,000 for an estimated useful life of 20

years.

3. The center provides lunch and two (morning and afternoon) snacks for the children. The cost of

the meal and snack is P100 per child. The center

has currently 10 children as regular customers

per day.

4. The center employed once staff with a daily rate of P350.

5. The utility costs when the center is not yet operational is at P300. Average utility costs

per month during the first year of operation is

at P3,000.

2. Identify the sunk costs in the case and briefly discuss why they are considered sunk costs. ( 5

points)

3. If you are the accountant, what alternative will you select for the laundry needs of the center. Show your supporting computations ( in an annual basis) for a) Self-serve laundry b) Pick- up/Delivery Service c) Purchase Appliances ( 15 points)

4. Compute for the Net Income/Loss of the center assuming they will purchase the dryer and washer. Assume that there is no parent who availed of the extended hours during the year. (15

points)

5. Compute for the Return on Investment(ROI) of the center using the Net Income determined in requirement no. 4. Do you think the retired couple's investment in the facility is a worthwhile one? ( 5 points)

6. The center has a wait list. They can hire another employee for a daily salary similar to that of

the existing employee. With the additional employee, the center can accept three additional

children. Should the center hire the additional employee? Show your detailed calculations. (5

points)

Problem 2: TROPA Company manufactures and sells a single product. The company’s sales and expenses for the month of January 2021 are as follows: Sales ( 1500 units) P375,000; Variable costs P150,000; Fixed Costs P150,000. (20 points) Required:

For profit planning purposes, compute the

1. Contribution margin ratio 2. Break-even peso sales 3. Break-even points in units 4. What unit sales are required to earn P60,000 profit for the month?

D end

“Real integrity is doing the right thing, knowing that nobody's going to know whether you did it or not.”

Note: Please use the answer sheet in writing (handwritten) your solution. Upload the picture/scanned copy of your answer sheet in our classroom on or before OCTOBER 18 - 8:30pm.

NAME:______________________________________

ANSWER SHEET

1. Type of Costs

Type of Costs

In relation to volume of activity

In relation to the product/service

1. Annual property insurance of P30,000.

2. Annual depreciation expense is determined at P175,000 for an estimated useful life of 20 years.

3. The center provides lunch and two (morning and afternoon) snacks for the children. The cost of the meal and snack is P120

per child. The center has currently 10 children as regular

customers per day.

4. The center employed once staff with a daily rate of P350. 5. The utility costs when the center is not yet operational is at

P300. Average utility costs per month during the first year of

operation is at P4,000.

2. Identify the sunk costs in the case and briefly discuss why they are considered sunk costs. ( 5

points) ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

Description/Account Title Supporting Computation in Parenthetical Form

Amount

b. Pick up / Delivery

c. Purchase Appliances

4. Compute for the Net Income/Loss of the center assuming they will purchase the dryer and washer. Assume that there is no parent who availed of the extended hours during the year. (15

points)

5. Compute for the Return on Investment (ROI) of the center using the Net Income determined in

requirement no. 4. Do you think the retired couple's investment in the facility is a worthwhile one? ( 5 points)

______________________________________________________________________________

6. The center has a wait list. They can hire another employee for a daily salary similar to that of

the existing employee. With the additional employee, the center can accept three additional

children. Should the center hire the additional employee? Show your detailed calculations. (5

points)

______________________________________________________________________________

Problem 2:

1. Contribution margin ratio

2. Break-even peso sales

3. Break-even points in units

4. What unit sales are required to earn P60,000 profit for the month?