Problem 4

Bong-A, Inc. sells a single product. The company's 2017 income statement is given below:

Sales 800,000

Less: Flexible (variable) expenses 200,000

Less: Capacity-related (fixed) expenses 300,000

In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

a. Calculate operating income and the breakeven point for 2017.

b. Management believes that a P100,000 increase in equipment improvements will result in a considerable increase in sales. How much must sales increase to justify this additional capital expenditure?

c. Assume management believes that flexible costs can be decreased by 10%. As a result, management wants to reduce the selling price by 2% and expects this reduction will result in a 5% increase in sales. What are projected profits if these proposals are implemented?