Davao Company sells its only product at P30 per unit. Variable costs are P22 per unit and fixed costs are P100,000 per month.

Required:

1. Suppose Davao is selling 20,000 units per month at P30. What is its margin of safety (a) in units and (b) in pesos?

2. Suppose Davao is selling 20,000 units per month at P30. What is the degree of operating leverage?

3. Davao currently pays its salespeople salaries that total to P40,000 per month, but no commissions. But their salaries would fall to a total of P25,000 per month (a drop of P15,000). At what sales level is the company indifferent between the two compensation plans?