Tararat Boom Boom Boom Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. Enough capacity exists in the company's plant to produce 16,000 units of the toy each month. Variable costs to manufacture and sell one unit would be P12.50, and fixed costs associated with the toy would total P350,000 per month.

The company's Marketing Department predicts that demand for the new toy will exceed the 16,000 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed cost of P10,000 per month. Variable costs in the rented facility would total P14 per unit, due to somewhat less efficient operations than in the main plant. The new toy will sell for P30 per unit.

7. The breakeven units for the new toy would be:

a. 22,500

b. 18,000

c. 20,000

d. 21,000

8. How many units should the company need to sell in order to earn a before-tax profit of P150,000?

a. 9,143

b. 35,000

c. 30,375

d. 31,875

9. If the sales manager receives a bonus of P1.00 for each unit sold in excess of the break-even point, how many units must be sold each month to earn a return of 25% on the monthly investment in fixed costs?

a. 27,000

b. 29,833

c. 30,000

d. 23,344