Sba Quiz Answer Key

Republic of the Philippines
BATANGAS STATE UNIVERSITY

The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 9800385; 9800387; 9800392 to 94; 4257158 to 62 loc. 1124
Email Address: cabeihm.pb@g.batstateu.edu.ph | Website Address: http://www.batstateu.edu.ph
College of Accountancy, Business, Economics and International Hospitality

Management
Name: __________________________
Section: _________________________ Score: _______/
Quiz
ACC 308 - Strategic Business Analysis
GENERAL DIRECTIONS
1. Do NOT use pencil and friction pen in your final answers.
2. Write clearly and legibly. Any answer that is not readable will automatically receive a score of
zero (0).
3. Each answer must be concise and limited to a maximum of five (5) sentences.
4. Ensure that your answers are well structured and directly address the question.
5. Show your solution.
Problem #1:
XYZ Corporation operates three product lines: Alpha, Beta, and Gamma. Below is the financial data
for the current year:
Alpha Beta Gamma Total
Sales ₱1,500,00 ₱2,200,00 ₱3,300,00 ₱7,000,00

0 0 0 0
Variable costs ₱750,000 ₱880,000 ₱2,640,00 ₱4,270,00

0 0
Controllable fixed costs ₱300,000 ₱700,000 ₱850,000 ₱1,850,00

0
Non-controllable fixed costs ₱120,000 ₱200,000 ₱400,000 ₱720,000
Allocated fixed costs ₱100,000 ₱100,000 ₱100,000 ₱300,000
i. Required:
1. Compute the contribution margin, controllable margin, segment margin, and operating profit
for each product line and the total corporation.
2. Identify which product line performs the best and justify your reasoning based on the results.
3. Suggest which product line (if any) should be discontinued or restructured to improve overall
profitability.
ii. Solution:
1. Step 1: Compute Contribution Margin
Contribution Margin = Sales - Variable Costs
Product Line Sales Variable Contribution Margin

Costs
Alpha ₱1,500,00 ₱750,000 ₱750,000
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Management
Beta ₱2,200,00 ₱880,000 ₱1,320,000

0
Gamma ₱3,300,00 ₱2,640,000 ₱660,000

0
Total ₱7,000,00 ₱4,270,000 ₱2,730,000

0
2. Step 2: Compute Controllable Margin
Controllable Margin = Contribution Margin - Controllable Fixed Costs
Product Line Contribution Margin Controllable Fixed Controllable Margin

Costs
Alpha ₱750,000 ₱300,000 ₱450,000
Beta ₱1,320,000 ₱700,000 ₱620,000
Gamma ₱660,000 ₱850,000 (₱190,000)
Total ₱2,730,000 ₱1,850,000 ₱880,000
3. Step 3: Compute Segment Margin
Segment Margin = Controllable Margin - Non-controllable Fixed Costs
Product Line Controllable Margin Non-controllable Fixed Segment Margin

Costs
Alpha ₱450,000 ₱120,000 ₱330,000
Beta ₱620,000 ₱200,000 ₱420,000
Gamma (₱190,000) ₱400,000 (₱590,000)
Total ₱880,000 ₱720,000 ₱160,000
4. Step 4: Compute Operating Profit
Operating Profit = Segment Margin - Allocated Fixed Costs
Product Line Segment Margin Allocated Fixed Operating Profit

Costs
Alpha ₱330,000 ₱100,000 ₱230,000
Beta ₱420,000 ₱100,000 ₱320,000

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Management
Gamma (₱590,000) ₱100,000 (₱690,000)
Total ₱160,000 ₱300,000 (₱140,000)
iii. Discussion:
1. Best Performing Product Line:

Beta performs the best with a segment margin of ₱420,000 and an operating profit of
₱320,000. It demonstrates the highest contribution to profitability and efficiency in managing
both controllable and non-controllable fixed costs.
2. Product Line Analysis:

○ Alpha: This product line contributes positively to the overall profitability with a segment
margin of ₱330,000. It is a stable performer.
○ Gamma: This product line incurs a negative segment margin of (₱590,000),
significantly reducing overall profitability. Its high variable costs and fixed costs
outweigh its revenue.
3. Recommendations:
Gamma should be restructured or discontinued. A thorough cost analysis should be conducted
to identify cost-saving measures or determine if the resources could be better allocated to
Alpha or Beta. Alternatively, increasing sales or revising pricing strategies for Gamma might
help reduce its negative impact.
iv. Summary:
The total operating loss of ₱140,000 indicates that Gamma's poor performance negatively affects the
corporation. By focusing on improving Beta and Alpha while restructuring or discontinuing Gamma,
XYZ Corporation can enhance overall profitability.
Problem #2
The Bamboo Division of Eco Corporation produces bamboo panels used in various construction
applications. Bamboo Division sells panels at an average price of ₱4,000 each and has a monthly
capacity of 1,200 panels. The Home Décor Division of Eco Corporation uses bamboo panels for its
furniture production and currently purchases them externally at ₱3,800 each. Below is the operating
data for the Bamboo Division at its current level of operation (800 panels per month):
● Variable Costs per Panel:

○ Production: ₱2,000
○ Selling Expenses: ₱400
○ General and Administrative Expenses: ₱200
● Fixed Costs per Panel (based on 1,200-panel capacity):
○ Production: ₱600
○ Selling Expenses: ₱300
○ General and Administrative Expenses: ₱200
The Home Décor Division requires 400 panels per month. If purchased from the Bamboo Division, the
panels would no longer require selling expenses.
Required:

Pablo Borbon Campus
Tel Nos.: (+63 43) 9800385; 9800387; 9800392 to 94; 4257158 to 62 loc. 1124

Management
1. Determine the minimum transfer price if Bamboo Division has excess capacity to produce the
additional 400 panels.
2. Determine the minimum transfer price if Bamboo Division operates at full capacity and accepts
the internal order by reducing external sales by 200 panels.
3. Suggest whether Home Décor Division should continue purchasing externally or procure
internally at the calculated minimum transfer prices.
v. Solution:
1. Step 1: Minimum Transfer Price with Excess Capacity
When there is excess capacity, the minimum transfer price is computed as:
Minimum Transfer Price=Incremental Costs−Savings
● Incremental Costs:
Variable Production Costs + General and Administrative Expenses
= ₱2,000 + ₱200 = ₱2,200
● Savings:
Selling Expenses (not required for internal transfer) = ₱400
Minimum Transfer Price= 2,200− 400= 1,800
2. Step 2: Minimum Transfer Price with No Excess Capacity
When there is no excess capacity, the minimum transfer price includes opportunity costs:
Minimum Transfer Price=Regular Sales Price+Opportunity Cost−Savings
● Regular Sales Price: ₱4,000
● Opportunity Cost:
Lost Contribution Margin per Panel = Regular Sales Price - Variable Costs - Selling Expenses
= ₱4,000 - (₱2,000 + ₱400) = ₱1,600
Opportunity Cost (200 panels): ₱1,600 × 200 / 400 = ₱800 per panel
● Savings: ₱400
Minimum Transfer Price= 4,000+ 800− 400= 4,400
3. Step 3: Recommendation
● At ₱1,800 (excess capacity scenario), the internal procurement is clearly advantageous for the
Home Décor Division compared to the external price of ₱3,800.
● At ₱4,400 (no excess capacity scenario), the internal price is higher than the external price, so
the Home Décor Division should continue buying externally unless the Bamboo Division can
justify the internal transfer's strategic or operational benefits.
vi. Discussion:

Pablo Borbon Campus
Tel Nos.: (+63 43) 9800385; 9800387; 9800392 to 94; 4257158 to 62 loc. 1124

Management
2. Excess Capacity: The Bamboo Division should sell to the Home Décor Division at ₱1,800 per
panel, as it does not incur opportunity costs and retains profitability while saving the Home
Décor Division significant costs.
3. Full Capacity: If the Bamboo Division operates at full capacity, the internal transfer price of
₱4,400 exceeds the external cost. The Home Décor Division should continue with its external
supplier unless internal procurement offers operational synergies.
This analysis demonstrates the importance of aligning divisional strategies with the overall corporate
goals to ensure efficiency and profitability.
Problem #3
i. Problem: Integrating Special Order Decision and Segment Evaluation
Davao Trading Corporation operates two divisions: Product X and Product Y. Below is the financial
performance for the current year:
Product X Product Y Total
Sales ₱5,000,00 ₱7,000,00 ₱12,000,000

0 0
Variable Costs ₱3,000,00 ₱4,200,00 ₱7,200,000

0 0
Contribution Margin ₱2,000,00 ₱2,800,00 ₱4,800,000

0 0
Avoidable Fixed Costs ₱800,000 ₱1,000,00 ₱1,800,000

0
Allocated Fixed Costs ₱1,000,00 ₱1,200,00 ₱2,200,000

0 0
Segment Margin ₱200,000 ₱600,000 ₱800,000
Operating Profit ₱(800,000) ₱(600,000) ₱(1,400,000)
Scenario:
A special sales order is offered for Product X. The customer requests 1,500 additional units at
₱2,500 per unit. Variable costs for the special order are ₱1,800 per unit, and additional fixed costs for
production are ₱150,000. Accepting the order would require sacrificing 300 units of regular sales of
Product X.
In addition, management is evaluating whether to discontinue Product X entirely.
Required:
1. Special Sales Order:

○ Compute the incremental profit or loss from accepting the special order.
○ Should the order be accepted?
2. Segment Evaluation:
○ Compute the overall profit impact of discontinuing Product X.
○ Should Product X be discontinued?

Pablo Borbon Campus
Tel Nos.: (+63 43) 9800385; 9800387; 9800392 to 94; 4257158 to 62 loc. 1124

Management
ii. Solution
1. Step 1: Special Sales Order Analysis
Incremental Revenue: 1,500×₱2,500=₱3,750,000
Incremental Costs:
● Variable Costs: 1,500×₱1,800=₱2,700,000

● Fixed Costs: ₱150,000₱150,000
● Opportunity Cost of Lost Contribution Margin (300 units):
300×₱(2,000,000/5,000)=₱120,000300
Total Incremental Costs: ₱2,700,000+₱150,000+₱120,000=₱2,970,000
Incremental Profit: ₱3,750,000−₱2,970,000=₱780,000
Decision: Since the incremental profit is positive (₱780,000), accept the special order.
2. Step 2: Segment Evaluation
If Product X is discontinued:
● Lost Contribution Margin: ₱2,000,000

● Saved Avoidable Fixed Costs: ₱800,000
● Allocated Fixed Costs: ₱1,000,000 (reallocated to Product Y or remain unchanged)
Net Impact on Profit: ( 2,000,000− 800,000)= 1,200,000 decrease in profit
Decision: Since discontinuing Product X results in a decrease in overall profit of ₱1,200,000, do not
discontinue Product X.
iii. Discussion
1. Special Sales Order: Accepting the special order generates an incremental profit of
₱780,000, enhancing overall profitability. The additional fixed costs and opportunity costs of
lost sales are more than offset by the revenue from the special order.
2. Segment Evaluation: Discontinuing Product X would harm overall profitability despite its
lower segment margin. This is because the contribution margin of ₱2,000,000 outweighs the
avoidable fixed costs of ₱800,000.
Davao Trading Corporation should accept the special order for Product X and retain the division to
maximize overall profitability.
Problem #4:
iv. Problem: Decision on Make or Buy and Process Further
1. Scenario: Make or Buy Decision

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Tel Nos.: (+63 43) 9800385; 9800387; 9800392 to 94; 4257158 to 62 loc. 1124

Management
Laguna Manufacturing Corporation (LMC) produces part QX-15 for its assembly line. Below is the
cost structure for producing 12,000 units of QX-15 annually:
● Direct Materials: ₱40 per unit

● Direct Labor: ₱30 per unit
● Variable Overhead: ₱15 per unit
● Fixed Overhead: ₱20 per unit
A supplier has offered to sell QX-15 to LMC for ₱95 per unit. If LMC buys the part, it will avoid 60% of
the fixed overhead costs. Additionally, the released facility could be used to produce a new product
that would generate a contribution margin of ₱120,000 annually.
2. Scenario: Process Further Decision
LMC also manufactures two joint products, Alpha and Beta, with the following data for the current
period:
Alpha Beta
Units Produced 5,000 8,000
Sales Price (Sell Now) ₱150 ₱200
Sales Price (Process Further) ₱180 ₱240
Additional Processing Costs per Unit ₱25 ₱30
Total Joint Costs: ₱1,200,000
3. Required:
1. Make or Buy Decision:

○ Compute the relevant costs of making and buying QX-15.
○ Should LMC make or buy the part? Show your computations.
2. Process Further Decision:
○ Determine whether LMC should sell Alpha and Beta at split-off or process them further.
○ Identify the incremental profit or loss for each product.
v. Solution

Pablo Borbon Campus
Tel Nos.: (+63 43) 9800385; 9800387; 9800392 to 94; 4257158 to 62 loc. 1124

Management
1. 1. Make or Buy Decision
Relevant Costs of Making QX-15:
● Direct Materials: ₱40 × 12,000 = ₱480,000

● Direct Labor: ₱30 × 12,000 = ₱360,000
● Variable Overhead: ₱15 × 12,000 = ₱180,000
● Avoidable Fixed Overhead: 60% × (₱20 × 12,000) = ₱144,000
Total Relevant Costs to Make=₱480,000+₱360,000+₱180,000+₱144,000=₱1,164,000
Relevant Costs of Buying QX-15:
● Purchase Price: ₱95 × 12,000 = ₱1,140,000

● Opportunity Cost (Contribution Margin from New Product): ₱120,000
Total Relevant Costs to Buy=₱1,140,000+₱120,000=₱1,260,000
Decision: Since the cost to make (₱1,164,000) is less than the cost to buy (₱1,260,000), LMC should
continue making QX-15.
2. 2. Process Further Decision
Alpha:
● Incremental Revenue: ( 180− 150)×5,000= 150,000( 180 - 150) × 5,000 = 150,000

● Incremental Costs: ₱25×5,000=₱125,000₱25 × 5,000 = ₱125,000
● Incremental Profit: 150,000− 125,000= 25,000 150,000 - 125,000 = 25,000
Beta:
● Incremental Revenue: ( 240− 200)×8,000= 320,000( 240 - 200) × 8,000 = 320,000

● Incremental Costs: ₱30×8,000=₱240,000₱30 × 8,000 = ₱240,000
● Incremental Profit: 320,000− 240,000= 80,000 320,000 - 240,000 = 80,000
Decision:
● Alpha should be processed further because it provides an incremental profit of ₱25,000.

● Beta should also be processed further because it provides an incremental profit of ₱80,000.
vi. Discussion
1. Make or Buy Decision: The analysis shows that making QX-15 is more cost-effective than
buying because of the lower total relevant costs. Additionally, the opportunity cost of the lost
contribution margin further increases the cost of purchasing the part.
2. Process Further Decision: Both Alpha and Beta generate incremental profits when
processed further. Thus, LMC should process these products to maximize profitability.
This integrated analysis highlights the importance of considering both direct costs and opportunity
costs when making nonroutine decisions.

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Republic of the Philippines

BATANGAS STATE UNIVERSITY

College of Accountancy, Business, Economics and International Hospitality

Alpha Beta Gamma Total

Sales ₱1,500,00 ₱2,200,00 ₱3,300,00 ₱7,000,00

Variable costs ₱750,000 ₱880,000 ₱2,640,00 ₱4,270,00

Controllable fixed costs ₱300,000 ₱700,000 ₱850,000 ₱1,850,00

Non-controllable fixed costs ₱120,000 ₱200,000 ₱400,000 ₱720,000

Allocated fixed costs ₱100,000 ₱100,000 ₱100,000 ₱300,000

1. Step 1: Compute Contribution Margin

Contribution Margin = Sales - Variable Costs

Product Line Sales Variable Contribution Margin

Alpha ₱1,500,00 ₱750,000 ₱750,000

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality

Beta ₱2,200,00 ₱880,000 ₱1,320,000

Gamma ₱3,300,00 ₱2,640,000 ₱660,000

Total ₱7,000,00 ₱4,270,000 ₱2,730,000

2. Step 2: Compute Controllable Margin

Controllable Margin = Contribution Margin - Controllable Fixed Costs

Product Line Contribution Margin Controllable Fixed Controllable Margin

Alpha ₱750,000 ₱300,000 ₱450,000

Beta ₱1,320,000 ₱700,000 ₱620,000

Gamma ₱660,000 ₱850,000 (₱190,000)

Total ₱2,730,000 ₱1,850,000 ₱880,000

3. Step 3: Compute Segment Margin

Segment Margin = Controllable Margin - Non-controllable Fixed Costs

Product Line Controllable Margin Non-controllable Fixed Segment Margin

Alpha ₱450,000 ₱120,000 ₱330,000

Beta ₱620,000 ₱200,000 ₱420,000

Gamma (₱190,000) ₱400,000 (₱590,000)

Total ₱880,000 ₱720,000 ₱160,000

4. Step 4: Compute Operating Profit

Operating Profit = Segment Margin - Allocated Fixed Costs

Product Line Segment Margin Allocated Fixed Operating Profit

Alpha ₱330,000 ₱100,000 ₱230,000

Beta ₱420,000 ₱100,000 ₱320,000

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College of Accountancy, Business, Economics and International Hospitality

Gamma (₱590,000) ₱100,000 (₱690,000)

Total ₱160,000 ₱300,000 (₱140,000)

1. Best Performing Product Line:

2. Product Line Analysis:

● Variable Costs per Panel:

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality

1. Step 1: Minimum Transfer Price with Excess Capacity

Minimum Transfer Price=Incremental Costs−Savings

Minimum Transfer Price= 2,200− 400= 1,800

2. Step 2: Minimum Transfer Price with No Excess Capacity

Minimum Transfer Price=Regular Sales Price+Opportunity Cost−Savings

● Regular Sales Price: ₱4,000

Minimum Transfer Price= 4,000+ 800− 400= 4,400

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality

i. Problem: Integrating Special Order Decision and Segment Evaluation

Product X Product Y Total

Sales ₱5,000,00 ₱7,000,00 ₱12,000,000

Variable Costs ₱3,000,00 ₱4,200,00 ₱7,200,000

Contribution Margin ₱2,000,00 ₱2,800,00 ₱4,800,000