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How many OXO must Ethel Electronics sell

    Assignment Instructions

    Assignment ID: FG133049183

    Questions –

    Q1. A company that sells its single product for p 40 per unit uses cost-volume-profit analysis in its planning. The company’s after-tax net income for the past year was P1, 188,000 after applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are presented below:

    Variable costs per unit:

    Direct material – P 5.00

    Direct labor-P 4.00

    Manufacturing overhead – P 6.00

    Selling and administrative costs – P 3.00

    Total variable cost per unit – P18.00 Annual fixed operating costs

    Manufacturing overhead – P6,200,000.00

    Selling and administrative costs -P 3,700,000.00

    Total annual fixed cost-P9,900,000.00

    The company has learned that a new direct material is available that will increase the quality of its product. The new material will increase the direct material costs by P3.00 per unit. The company will increase the selling price of the product to P50.00 per unit and increase its marketing costs by P1.575,000.00 to advertise the higher quality product. The number of units the company has to sell in order to earn a 10% before-tax return on sales would be?

    Q2. The cost information in the opposite column relates to the product

    Direct Material/unit -P 3.25

    Direct labor/unit-P40

    Distribution/unit – P0.75

    The company will also be absorbing P120,000 of additional fixed costs associated with this new product. A corporate fixed charge of P20,000 currently absorbed by other products will be allocated to this new product.

    Answer the following and show your solution

    1. If the selling price is P14 per unit, the breakeven point in units (rounded to the nearest hundred) for OXO is?

    2. How many OXO (rounded to the nearest hundred) must Ethel Electronics sell at a selling price of P14 per unit to gain P 30,000 additional income before taxes?

    3. How many OXO (rounded to the nearest hundred) must Ethel Electronics sell at a selling price of P 14 per unit to increase after-tax rate income by P30,000? Bethel Electronics effective income tax rate is 40%.

    Q3. Pablo Manufacturing, which is subject to a 40% Income tax rate, had the following operating data for the period just ended:

    Selling price per unit – P 60

    Variable cost per unit – P22

    Fixed costs. P 504,000

    Management plans to improve the quality of its sole product by

    (1) Replacing a component that costs P3.50 with a higher-grade unit that costs P5.50 and

    (2) Acquiring a P180, 000 packing machine. Pablo will depreciate the machine over a 10year life with no estimated salvage value by the straight-line method of depreciation if the company wants to earn after-tax income of P172, 800 in the upcoming period. It must sell, how many units?

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