Name: ASTILLERO, Cherish Hyacinth G.

Section 4 | June 26, 2020

RIVERO, Gabrielle Ross V.
SUMULONG, Maryrose V.
VELUZ, Cathleen D.
CASE PROBLEM ACTIVITY

Case Problem: Zarick Amiel Mercadejas is working as a Mechanical Engineer for Vesarius Reigo Firm
for 4 years. He has an exemplary job in the firm and has may experience and credentials in his field.   He
has an income of P245,207.  He decided to quit his job because of low incentives and create his own
Engineering consulting firm.  To run his own firm, he acquired the cost of company registration, office
space, hiring personnel, and engineering supplies. When he operated his firm he gained revenue of
P550,00
Given Data:

Annual Income – 245,207 Hiring Personnel – P90,000

Company Registration – P23,000 Engineering Supplies – P250,000
Office Space – P12,000 Firm Earnings – P550,000/year
Solution:

Accounting Profit: P550,000 – (P23,000+ P12,000 + P90,000+P250,000) = P175,000

Economic Profit: P550,000 – (P23,000+ P12,000 + P90,000+P250,000) – P245,207 = - P70,207
Decision(s):
The firm of Mr. Mercadejas will be profitable with an accounting profit of P175,000. However, it means
that he would be earning P70,207 less than if he worked for the firm which will be a bad decision.

Case Problem: Carl is an owner of a clothing line here in Metro Manila. He is renting a commercial
space in Quezon City and he pays rent and electricity monthly. In order, to make his business grow, he
asked a friend to do an advertisement for a clothing line in which he will publish online. Every time his
clothes were sold out, he continuously buys plain shirts again and reprint the clothing line design. His
fixed cost is rent in a commercial space. The variable cost is the shirts and printing ink used in the
business. Compute for the total cost, average cost and marginal cost. Based on the computed MC, what
MR must he maintain to decide an optimum level of units produced? Justify your decision(s).
Given Data & Solution:

Average Marginal Total Marginal

Unit Variable Cost Fixed Cost Total Cost
Cost Cost Revenue Revenue
1 P250 P2800 P3050 P3050
2 P325 P2800 P3125 P1562.5 P75
3 P400 P2800 P3200 P1066.67 P75
4 P520 P2800 P3320 P830 P120
5 P600 P2800 P3400 P680 P80
Decision(s):

Case Problem: Regina is a professional hairstylist working on a well-known salon in Pasay. By working
full-time, she acquires an annual salary of P360,000 plus a health insurance worth P50,000 every year.
After working for the said salon for 11 years, Regina thinks of opening her business where she can
dedicate her skills and effort. She estimates that by opening her own salon, she would earn P1,100,000
annually. The corresponding annual rental fee is estimated at P50,000 and the expected annual employee
wage is P150,000. The total capitalization on equipment is P100,000.
Given:
Annual Salary – P360,000 Rental Fee- P50,000/year
Health Insurance – P50,000/year Employee wage – P150,000/year
Estimated Earnings – P1,100,000/year Equipment – P100,000
Solution:
Accounting Profit: P1,100,000 – (P50,000 + P150,000 + P100,000) = P800,000
Economic Profit: P1,100,000 – (P50,000 + P150,000 + P100,000) – (P360,000 + P50,000) = P390,000
Decisions:
If Regina wants to increase her annual earning, yes, she should pursue opening her own salon because
based on the computation, she would surely earn a lot of profit by opening up her own business rather
than earning a profit in working a full-time job in a salon in Pasay.
Case Problem: Ben Martirez is a newly-hired head of the production team of the shoe business. The
production of shoes includes the production place, machinery, employees, and raw materials. Assume that
the place costs P300,000 and all the machinery needed costs P200,000. The salary of a worker is P10,000
and the raw materials to produce a pair of shoes cost P2,000. Usually, the business produces 1,200 pairs
of shoes with the accumulated workforce of 30 employees. Ben Martirez is deciding to keep the
production the same or increase it to 1,800 pairs of shoes but he needs to hire more employees by 10 and
increase also the budget allocated for raw materials. However, increasing the production will also
increase the profit by P3,000,000.
Given Data:

Annual Income – 245,207

Company Registration – P23,000
Office Space – P12,000
Hiring Personnel – P90,000
Engineering Supplies – P250,000
Firm Earnings – P550,000/year
Solution:
Decision(s):
Case Problem: Alex is employee in a cafeteria and his annual salary is P240,000 plus SSS insurance of
P40,000 annually. Alex is business minded and after 15 years of work he dreams to establish his own
cafeteria. Alex wants to open his new cafeteria in Mandaluyong near a University.  His estimated annual
income is P1,500,000. His annual rent expense is P180,000, staff salary expense is P240,000 per year and
capital for equipment needed is P100,000. The annual utilities expense is P120,000.
Given:
Annual Salary – P240,000 Staff Salary – P240,000/year
SSS Insurance – P40,000/year Equipment – P100,000
Estimated Earnings – P1,500,000/year Utilities – P120,000/year
Rental Fee- P180,000/year
Solution:
Accounting Profit: P1,500,000 – (P180,000 + P240,000 + P100,000 + P120,000) = P860,000
Economic Profit: P1,500,000 – (P180,000 + P240,000 + P100,000 + P120,000) – (240,000 + P40,000) =
P580,000
Decisions:
If Alex wants to increase his annual income, he must open his new cafeteria nearby a University in
Mandaluyong. Based on the computation above, Alex will earn higher than his annual salary.