PROBLEM 1

FAITH BIRD CORP. has some material that originally cost P74,600. The material has a scrap value of P57,400 as is, but if reworked at a cost of P1,500, it could be sold for P54,400. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?

A -P79,100

B -P4,500

C -P21,700

D P52,900

E None of the above

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PROBLEM 2

Toyota's Laguna Division is currently purchasing a part from an outside supplier. The company's Quezon Division, which has excess capacity, makes and sells this part for external customers at a variable cost of P22 and a selling price of P34. If Quezon begins sales to Laguna, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by P4. If sales to outsiders will not be affected, Quezon would establish a transfer price of:

A P18.

B P22.

C P30.

D P34.

E None of the above