Question
Part II. Long Problems Problem 1 - C-V-P Analysis: Single Product (35 points) Careless Corp. has collected the following information after its first year of
Part II. Long Problems
Problem 1 - C-V-P Analysis: Single Product (35 points)
Careless Corp. has collected the following information after its first year of
operation:
Net sales (100,000 units), P1.6 million; Direct materials, P511,000; Direct
labor, P285,000; Manufacturing overhead, P360,000 (70% variable, 30% fixed);
Selling expenses, P240,000 (40% variable, 60% fixed); Admin expenses,
P280,000 (20% variable, 80% fixed). Management has projected that unit sales
will increase by 20% next year.
Required: show proofs if necessary.
1. Using contribution margin format, prepare income statements of the
current year and the projected year.
2. The company has a target profit of P120,000. What is the required peso
sales to meet its target?
3. If the company wants a target income of 12.5% of sales, how many number
of units should be sold? What is the margin of safety?
4. If management set the increase in sales next year by 25% instead of 20%,
what is the percentage increase in profit?
5. If the company is considering a purchase of equipment that would reduce
its direct labor cost by P104,000 and would change its manufacturing
overhead cost to 30% variable and 70% fixed (assume the same amount
of manufacturing overhead cost given above). It also considering
switching to a pure commission basis for its sales staff. This would change
selling expenses to 80% variable and 20% fixed (assume same amount of
selling expenses as above). What is the new break-even point in peso
sales and in units?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started