Fennel, Inc. distributes silk fabric clothing that sells for P400 per unit. Variable expenses are P160 per unit, and fixed expenses total P350,000 per year. Its operating results for last year were as follows:

Sales	P 1,200,000
Variable Cost	480,000
Contribution Margin	P 720,000
Fixed Cost	350,000
Net Operating Income	P 370,000

Answer each questions independently:

1. Compute the break-even point in sales.

2. If the year's sales increases by P150,000 and with no changes in fixed cost, how much will net operating income increase?

3. What is the degree of operating leverage from the operation last year?

4. Assume the president expects this year's sales to increase by 20%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? Show proof by preparing a comparative contribution margin income statement.

5. The sales manager is convinced that a 10% reduction in the selling price, combined with a P100,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? Do you recommend implementing the sales manager's suggestions? Why?