BM2021
NAME: DATE: SCORE:
TASK PERFORMANCE
Instructions: Read and analyze the situations given below. Answer the following questions on a separate sheet
of paper. Show your computations. (13 items x 5 points)
An airline company flies domestic routes between Manila and the various cities in the Philippines. The airline
serves meals to all passengers as part of their package service. The cost of one (1) complete meal is provided
below.
Variable costs:
Direct materials P6.00
Direct labor 4.00
Variable overhead 4.00
Fixed costs:
Supervisory salaries 4.00
Depreciation of kitchen equipment 7.00
Total cost per meal P25.00
A catering service has offered to supply the meals for P20.00 each. Assume further that P1.00 of the fixed
costs could be avoided. The fixed cost per unit was computed using the normal operations of 2,000 meals per
month.
1. Determine the relevant/differential costs.
2. Should the company make or buy meals?
Assume that a Hong Kong tourist agency approached the president of the airline about flying chartered tourist
flights from Manila to Hong Kong. The tourist agency has offered the airline P180,000 per round-trip flight on
a jumbo jet. Given the airline’s usual occupancy rate and airfares, a round-trip jumbo jet generates revenue
of P270,000.
Sales Revenues:
Passenger P270,000
Cargo 40,000 P310,000
Variable Costs 120,000
Fixed Costs 100,000 220,000
Net Income 90,000
If the offer is accepted, the company will not incur reservations and ticketing costs estimated to be P10,000.
There is also excess capacity to cater to the additional flights of the special offer.
3. Determine the relevant/differential costs.
4. Should the offer be accepted?
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BM2021
The airline is presently offering its passengers to join a club that entitles them to use the club facilities. The
controller ascertained that all variable costs could be avoided if the club operations will be eliminated,
including some fixed costs:
Supervisor’s salaries P40,000
Airport fees 10,000
Depreciation on equipment 20,000
The club’s income statement reported a net loss as shown below:
Sales P400,000
Variable Costs:
Direct materials P140,000
Direct labor 80,000
Manufacturing overhead 50,000 270,000
Contribution margin P130,000
Fixed Costs:
Depreciation on equipment P60,000
Supervisor’s salaries 40,000
Insurance 20,000
Airport Fees 10,000
General overhead allocated 20,000 150,000
Net Income P20,000
5. Determine the direct contribution margin.
6. Should the club be continued or eliminated?
Due to heavy rains brought by La Niña, the management of the company is contemplating to close club
operations of the airline temporarily. The expected demand for the club was reduced, which is expected to
last for four (4) months. Assume the typical monthly operating revenues and costs of the club operations:
Selling price per membership P400
Variable costs per membership 270
Contribution margin 130
Fixed costs per month P150,000
Fixed costs avoided if stop operations 70,000
Additional costs during the shutdown 25,000
period for four (4) months
Estimated restarting costs 50,000
If they continue operating, the company will be forced to reduce the membership selling price by 12.50%. The
demand for the club is 4,000 memberships.
7. Shutdown costs
8. Shutdown savings
9. Shutdown point
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10. Net advantage of continued/shut down operations
11. Should the club operations shut down or continue?
The airline has a three-year-old truck loader used to load in-light meals onto airplanes. The box on the truck
can be lifted hydraulically to the level of a jumbo jet’s side doors. The management is considering replacing it
with a new type of loader that is much cheaper than the old hydraulic loader and costs less to operate.
However, the new loader would be operable only for one (1) year before it would need to be replaced. Data
for the decision would be as follows:
Acquisition cost of the old loader P200,000
Depreciation on straight-line 4 years
basis from the time of acquisition
No salvage value
Disposal value now (Year 3) 10,000
Annual operating costs (old) 160,000
Acquisition cost of the new 30,000
loader
Useful life 1 year
Annual operating costs P90,000
12. Determine the relevant/differential cost.
13. Should the old loader be retained or replaced?
Rubric for problem-solving:
CRITERIA POINTS
Correct accounts and amounts used. 3
Computed final amounts are correct and balanced. 2
TOTAL 5
Rubric for short-answer:
CRITERIA PERFORMANCE INDICATORS POINTS
Content Provided pieces of evidence,
supporting details, and factual 3
scenarios
Organization Expressed the points in a clear and
of ideas logical arrangement of ideas in the 2
paragraph
TOTAL 5
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