Reference no: EM132980600

Question - Sky Castle Manufacturing Company has fixed manufacturing overhead costs of P560,000 on its annual production of 70,000 chairs. The level of production and annual fixed costs does not change and is not expected to change. The entity's fixed selling and administrative expenses is P250,000 annually. Variable selling and administrative costs amounts to P10 per unit. The Statement of Financial Position of the entity as at December 31, 2020 reported finished goods inventory amounting to P645,000. The variable costs associated with the entity's inventories include direct materials of P20 per unit, direct labor of P8 per unit, and variable manufacturing overhead of P7 per unit. Fixed manufacturing overhead, in compliance with GAAP, is thereby reported as product costs as well where fixed manufacturing overhead is split between cost of goods sold when products are sold, and finished goods inventory when still unsold.

During 2021, the entity pushed through with the regular production of 70,000 chairs with no change in total fixed costs and variable costs per unit. During 2021, the entity sold 80,000 chairs. Net income reported in the contribution margin income statement is P2,790,000 in the same year.

Required - At what percentage of all variable cost per unit does the entity sell their chairs?

A. 25%

B. 50%

C. 100%

D. 200%