COMPREHENSIVE PROBLEM ARA Skin Care, Inc. was incorporated on July 17, 2000, primarily to engage in the business of aesthetic and dermatological services. The Company's principal office address is Maharlika Highway, Daang Sarile, Cabanatuan City 3100 Nueva Ecija. Throughout the years, the ever evolving field of Cosmetic Dermatology has continued to be a relentless pursuit of novelty and innovation of the Company The company financial statements have been prepared under the historical cost basis and are presented in Philippine peso, the Company's functional and presentation currency. All amounts are rounded to the nearest peso, except as otherwise indicated. On March 31, 2021, the CEO of ARA Skin Care, Inc. has asked you to participate in a project study that will launch a new product called "Dermacare". The projected income statement for the following period, without the new procedure, appears as follows: P600,000 Projected Income Statement (000s omitted) Net sales Variable cost of sales Materials P250,000 Labor 80,000 Factory averhead 30.000 Manufacturing margin Fixed overhead Gross profit Operating expenses Distribution 60,000 Selling and delivery 70,000 Marketing 36,000 General and administrative 24,000 Profit before tax Provision for income tax Profit after tax 360,000 240,000 20,000 1220,000 190,000 P30,000 9,000 121,000 The following information were made available by a team composed of marketing, production, finance, legal, human relations, and other key members of the management a. Based on the market research conducted, the optimum introductory price for "Dermacare" is P250 per product and about 30,000 products can be sold at this price in the coming period. b. "Dermacare" non-fixed product cost will have the same rate of variability to net sales as the old product. c. Procedure of "Dermacare" will require new equipment and additional manpower, hence, fixed manufacturing overhead is expected to increase by 20%. d. The same selling and delivery facilities will be used. Thus, this expense will increase only by 4%. e. Distribution costs will remain unchanged because the new product will not require new investments on equipment and distribution centers. f. "Dermacare" should enter the market with a big bang. This will require heavy spending in marketing although it will require heavy spending in marketing although it will be limited to 10% of the net sales from "Dermacare" & The new product will require additional general and administrative costs of P1,000,000 h. Analysis of cash flows show favorable results. Scenario(s): If the company's minimum acceptable rate of return on sales for the new product is 5%, the "Dermacare product will be implemented, what is number of units to be sold is at least? If the maximum number of units in "Dermacare relevant range is the excess production capacity of the company, what is the new product's projected profit before tax with sales of 25,000 units? Budgeted production capacity Normal production capacity Actual production capacity 450,000 units 400,000 units 350,000 units On November 15, 2021, ARA Skin Care, Inc. engaged the services of LDA, Inc. for its wellness seminar for its employees to be held on December 15, 2021. LDA, Inc is a domestic corporation that offers, among others, business seminars. These seminars a help update the knowledge of corporate officers and employees. LDA caters participants who are sponsored by their employees. This is one big event, since this is the company's first seminar where the resource speaker is Dr. Claire Browne, a Manila-based Dermatologist. As of today, LDA, Inc. has received confirmation from 200 participants. Deadline for payment of the seminar fee is on the first day of the seminar month. The seminar will be held for two days. The seminar fee is P10,000 per participant Seminar related expenses are estimated as follows: 130,000 25,000 Guest speaker's fee per day Accommodations-guest speaker and his accompanying staff Plane ticket and other transportation costs - guest speaker and party 20,000 Other fixed costs for the seminar 40,000 Expenses for each participant Seminar kit 2.500 Hotel accommodations for the duration of 5,000 the seminar, including meals and snacks Other variable costs 3,000 Dr. Browne said the LDA, Inc. will earn a big amount of profit if all confirmed participants will pay and attend the seminar. He also said that even if some of the 200 confirmed participants would back out the company will not incur a loss. This, according to him, is based on the break even analysis prepared by the company's accountant. All fees and expenses will be shouldered by ARA Skin Care, Inc. Scenarios: If only 80% of the 200 participants actually attend, how much is LDA's profit from the said event? How will ARA Skin Care, Inc. record this transaction in its books? If only 60% of the 200 participants actually attend, how much is LDA's profit from the said event? How will ARA Skin Care, Inc. record this transaction in its books? COMPREHENSIVE PROBLEM ARA Skin Care, Inc. was incorporated on July 17, 2000, primarily to engage in the business of aesthetic and dermatological services. The Company's principal office address is Maharlika Highway, Daang Sarile, Cabanatuan City 3100 Nueva Ecija. Throughout the years, the ever evolving field of Cosmetic Dermatology has continued to be a relentless pursuit of novelty and innovation of the Company The company financial statements have been prepared under the historical cost basis and are presented in Philippine peso, the Company's functional and presentation currency. All amounts are rounded to the nearest peso, except as otherwise indicated. On March 31, 2021, the CEO of ARA Skin Care, Inc. has asked you to participate in a project study that will launch a new product called "Dermacare". The projected income statement for the following period, without the new procedure, appears as follows: P600,000 Projected Income Statement (000s omitted) Net sales Variable cost of sales Materials P250,000 Labor 80,000 Factory averhead 30.000 Manufacturing margin Fixed overhead Gross profit Operating expenses Distribution 60,000 Selling and delivery 70,000 Marketing 36,000 General and administrative 24,000 Profit before tax Provision for income tax Profit after tax 360,000 240,000 20,000 1220,000 190,000 P30,000 9,000 121,000 The following information were made available by a team composed of marketing, production, finance, legal, human relations, and other key members of the management a. Based on the market research conducted, the optimum introductory price for "Dermacare" is P250 per product and about 30,000 products can be sold at this price in the coming period. b. "Dermacare" non-fixed product cost will have the same rate of variability to net sales as the old product. c. Procedure of "Dermacare" will require new equipment and additional manpower, hence, fixed manufacturing overhead is expected to increase by 20%. d. The same selling and delivery facilities will be used. Thus, this expense will increase only by 4%. e. Distribution costs will remain unchanged because the new product will not require new investments on equipment and distribution centers. f. "Dermacare" should enter the market with a big bang. This will require heavy spending in marketing although it will require heavy spending in marketing although it will be limited to 10% of the net sales from "Dermacare" & The new product will require additional general and administrative costs of P1,000,000 h. Analysis of cash flows show favorable results. Scenario(s): If the company's minimum acceptable rate of return on sales for the new product is 5%, the "Dermacare product will be implemented, what is number of units to be sold is at least? If the maximum number of units in "Dermacare relevant range is the excess production capacity of the company, what is the new product's projected profit before tax with sales of 25,000 units? Budgeted production capacity Normal production capacity Actual production capacity 450,000 units 400,000 units 350,000 units On November 15, 2021, ARA Skin Care, Inc. engaged the services of LDA, Inc. for its wellness seminar for its employees to be held on December 15, 2021. LDA, Inc is a domestic corporation that offers, among others, business seminars. These seminars a help update the knowledge of corporate officers and employees. LDA caters participants who are sponsored by their employees. This is one big event, since this is the company's first seminar where the resource speaker is Dr. Claire Browne, a Manila-based Dermatologist. As of today, LDA, Inc. has received confirmation from 200 participants. Deadline for payment of the seminar fee is on the first day of the seminar month. The seminar will be held for two days. The seminar fee is P10,000 per participant Seminar related expenses are estimated as follows: 130,000 25,000 Guest speaker's fee per day Accommodations-guest speaker and his accompanying staff Plane ticket and other transportation costs - guest speaker and party 20,000 Other fixed costs for the seminar 40,000 Expenses for each participant Seminar kit 2.500 Hotel accommodations for the duration of 5,000 the seminar, including meals and snacks Other variable costs 3,000 Dr. Browne said the LDA, Inc. will earn a big amount of profit if all confirmed participants will pay and attend the seminar. He also said that even if some of the 200 confirmed participants would back out the company will not incur a loss. This, according to him, is based on the break even analysis prepared by the company's accountant. All fees and expenses will be shouldered by ARA Skin Care, Inc. Scenarios: If only 80% of the 200 participants actually attend, how much is LDA's profit from the said event? How will ARA Skin Care, Inc. record this transaction in its books? If only 60% of the 200 participants actually attend, how much is LDA's profit from the said event? How will ARA Skin Care, Inc. record this transaction in its books