d. units. 36,000 units. (CMA, Adapted) Questions 14 and 15 are based on the following information. Delta Company has developed a new project that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at P36 per unit. Delta's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at P450,000 for the year, which includes P60,000 for depreciation on new manufacturing equipment. Data associated with each unit of product are presented below. Delta is subject to a 40% income tax rate. Variable Costs Direct material P 7.00 3.50 Direct labor 4.00 Manufacturing overhead 14.50 Total variable manufacturing cost 1.50 Selling expenses P16.00 Total variable cost The maximum after-tax profit that can be earned by Delta Company 15. Delta Company's management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least P75,000 the first year. The unit 130 Chapter 4 14. a. P30,000. (CMA, Adapted) b. P50,000 c from sales of the new product during the next fiscal year is P110,000 d. P66,000. c. selling price to achieve this target profit must be at least P34.60. d. P39.00. a. b. P37.00. P36.60. (CMA, Adapted) Questions 16 through 18 are based on the following information. Bethel Electronics Co. is developing a new product, OXO for high-voltage electrical flows. The cost information in the opposite column relates to the product Unit Costs Direct material P 3.25 Direct labor 4.00 Distribution 0.75 The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed charge of P20,000 currently absorbed by other products will be allocated to this new product. 16. a. If the selling price is P14 per unit, the breakeven point in units (rounded to the nearest hundred) for OXO is 8,500 units. b. 10,000 units. 15,000 units. d. 20,000 units. (CMA, Adapted) c. 17. How many OXO (rounded to the nearest hundred) must Bethel Electronics sell at a selling price of P14 per unit to gain P30,000 additional income before taxes? 10,700 units c. 20,000 units b. 12,100 units d. 25,000 units (CMA, Adapted) a. 1.) variable cost 2.) a.) BEP(units) - 15000 units. sales pesos = 900 000 enue in units = 18750 units. 11 25 000 18. a. b. c. 19. Cost-Volume-Profit Relationships 131 How many oxo (rounded to the nearest hundred) must Bethel Electronics sell at a selling price of P14 per unit to increase after-tax income by P30,000? Bethel Electronics effective income tax rate is 40%. 10,700 units. 12,100 units. 20,000 units. d. 28,300 units. (CMA, Adapted) Pablo Manufacturing, which is subject to a 40% income tax rate, had the following operating data for the period just ended: Selling price per unit P 60 Variable cost per unit 22 Fixed costs 504,000 Management plans to improve the quality of its sole product by () replacing a component that costs P3.50 with a higher-grade unit that costs P5.50 and (2) acquiring a P180,000 packing machine. Pablo will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of P172,800 in the upcoming period, it must sell 19,300 units. b. 21,316 units. 22,500 units. d. 23,800 units. (CMA, Adapted) a. C. 20. A company that sells its single product for P40 per unit uses cost- volume-profit analysis in its planning. The company's after-tax net income for the past year was P1,188,000 after applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are presented below. Variable costs per unit: Direct material P 5.00 Direct labor Manufacturing overhead 6.00 Selling and administrative costs 3.00 Total cost per unit P18.00 4.00 The company has learned that a new direct material is available that will increase the quality of its product. The new material will increase the direct material costs by P3 per unit. The company will increase the costs by P1,575,000 to advertise the higher-quality product. The selling price of the product to P50 per unit and increase its marketing number of units the company has to sell in order to earn a 10% before 132 Chapter Annual fixed operating costs: Manufacturing overhead Selling and administrative costs Total annual fixed cost P6,200,000 3,700.000 P9,900.000 (CIA, Adapted) 21. tax return on sales would be a. 337,500 units. b. 346,875 units. c. 425,000 units. d. 478,125 units. A company allocates its variable factory overhead based on direct labor hours. During the past 3 months, the actual direct labor hours and the total factory overhead allocated were as follows: January February Direct labor hours 1,000 3,000 Total factory overhead allocated P 80,000 P140,000 March 5,000 P200,000 a. Based upon this information, monthly fixed factory overhead was P50,000. P33,333. b. P46,667. d. P30,000. (CIA, Adapted) C. 22. Blue Company produces Product A and sells it for P18.00. The following cost data apply: Type of Cost Per Unit Direct materials (3 lb. x P1.50) P 4.50 Direct labor 6.45 Variable overhead 1.35 Fixed overhead 1.50 Variable selling expense 1.10 Fixed selling expense 2.20 P17.10 MELC b sales re in Pesos - 11 25 600 a. c. 23. Cost-Volume-Profil Relationships 133 Blue has thought of marketing a new Product B with the same cost structure as Product A except that the price will be P15.60. Blue Company currently has the plant capacity necessary for this expansion Because of the cost structure, Blue Company will find the production and sale of Product B in the short run to be Not profitable unless the price can be raised to P17.10. b. Not profitable at any price. Not profitable at P15.60 because the fixed selling expense and fixed manufacturing overhead will not be covered by the price. d. Profitable to produce and sell Product B in the short run at the price of P15.60. (CIA, Adapted) Mango Company's controller developed the following direct-costing income statement for year 1: Per Unit Sales (150,000 units at P30) P4,500,000 P30 Variable costs: Direct materials P1,050,000 P7 Direct labor 10 1,500,000 Mfg. overhead 2 300,000 Selling & marketing 300,000 2 (3,150,000) P21 P1,350,000 P 9 Contribution margin Fixed costs: Mfg. overhead P600,000 P4 Selling & marketing 300,000 2 (900,000) P6 Net income P450,000 P 3 Mango Co, based its next year's budget on the assumption that fixed costs, unit sales, and the sales price would remain as they were in year 1, but with net income being reduced to P300,000. By July of year 2, the controller was able to predict that unit sales would increase over year 1 levels by 10%. Based on the year 2 budget and the new information, the predicted year 2 net income would be P300,000 P420,000 b. P330,000 d. P585,000. (CIA, Adapted) a. c. MEL MODA