Reference no: EM133074580

Questions -

Q1. ABC CO. budgeted sales of 400,000 calculators at P40 for 2021. Variable manufacturing costs were budgeted at P16 per unit, and fixed manufacturing costs at P10 per unit. A special order offering to buy 40,000 calculators for P23  each was received by ABC CO. in October 2021. ABC CO. has sufficient plant capacity to manufacture the additional quantity; however, the production would have to be done on an overtime basis at an estimated additional cost of P3 per calculator. Acceptance of the special order will not affect ABC's normal sales and no selling expenses would be incurred. What would be the effect on operating profit (loss) if the special order were accepted?

Q2. ABC CO. plans to replace one of its machines with a new efficient one. The old machine has a net book value of P120,000 with remaining economic life of 4 years. This old machine can be sold for P80,000. If the new machine were acquired, the cash operating expenses will be reduced from P240,000 to P160,000 for each of the four years, the expected economic life of the new machine. The new machine will cost ABC a cash payment to the dealer of P300,000. The company is subject to 32% tax and for this kind of investment, a marginal cost of capital of 9%. Use 5 decimal places for the PV factors. What the net present value to be provided by the replacement of the old machine?