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CoursHeroTranscribedText: The B Company produces a part that is used in the final assembly of its main product. Two manufacturing operations are required to produce the part. Typical annual production of the part is 400,000 units. The estimated current costs are as follows: Operation1 Operation 2 Materials P240,000 Direct labor 180,000 P180,000 Variable overhead 100,000 100,000 Fixed overhead (allocated) 120,000 60,000 Operation 1 can be eliminated if these parts are purchased from an outside vendor. The vendor will supply 400,000 units a year at P2.00 per unit. These parts would still have to be processed through Operation 2. The B Company would have to pay freight charges of P20,000 a year on the purchased parts. If Operation 1 is eliminated, the space can be rented for P25,000 per year. REQUIRED: 1. Should the company purchase the parts or continue making them internally? Use the total approach first. Then use the incremental analysis next.The manager of Q Corporation is recommending the closure of Branch B in order to eliminate its net loss of P33,750. The income statement shows: Home Branch Branch Office A B Sales P800,000 P300,000 P500,000 Cost of sales P400,000 P120,000 P250,000 Operating expenses directly related to sales 80,000 30,000 80,000 Operating expenses indirectly related to sales 90,000 20,000 110,000 General & administrative expenses allocated 150,000 56,250 93,750 Total costs & expenses P720,000 P226,250 P533,750 Operating income P80,000 P73,750 P(33,750) If Branch B is closed, one personnel (with salary of P30,000) have to be transferred to the home office. Branch B has furniture costing P120,000 and with an estimated useful life of 5 years has to be transferred also to the home office. REQUIRED: 1. Do you agree with the manager? Explain

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