EXERCISE 5: Shutting down operations The most recent monthly income statement for ABC stores is given below: Baguio branch Manila Branch Sales P1,200,000 P800,000 Less: Variable expenses (840,000) (360,000) Contribution margin P360,000 P440,000 Less: traceable Fixed cost (210,000) (180,000) Segment margin P150,000 P260,000 Less: common fixed Costs (180,000) (120,000) Profit(loss) (P30,000) P140,000 If Baguio Branch were eliminated, then its traceable fixed costs could be avoided. The total common fixed cost are merely allocated and would be unaffected. A. What will be the new company profit (loss) if Baguio branch is eliminated? B. What will be the decrease in company profit if Baguio branch is closed and 20% of its traceable fixed costs would remain unchanged while Manila sales would decrease by 20%? EXERCISE 6: Product ELIMINATION POINT ABC company expects that sales will drop below the current level of 5,000 units per month. An income statement prepared for the monthly sales of 5,000 units show the following: Sales(5,000 @P3) Less: P15,000 Variable cost(5,000@P2) P10,000 Fixed costs 5,000 Profit 15,000 -Nil If plant operations are suspended, a shutdown costs (i.e. plant maintenance and taxes) of P2,000 per month will remain as incurred. Since there is no immediate possibility of profit under present conditions, the problem of the company is just how to minimize the loss. REQUIRED: 1. What is the shutdown point in units? 2. Should the company continue or shutdown operations if sales next month are expected to be: a. 4,000 units b. 2,000 units