Reference no: EM132771835

Question - Complete the requirements questions from CVP Analysis

Astra produces one product. A 10% wage increase goes into effect next year to the manufacturing employees. The wage is a variable labor. Overhead will not change as a result of wage increase. You are satisfied that volume is the primary factor affecting costs and have separated the semi-variable costs into their fixed and variable components by means of the least squares method. You also observed that the beginning and ending inventories are never materially different. Below are the current year data assembled for your analysis

Selling price per unit P80.00

Annual volume of sales 5,000 units

Variable cost per unit:

Materials P30.00

Fixed Costs P51,000

Labor 13.00

Overhead 6.00

Required -

1. What increase in the selling price is necessary to cover the 10% wage increase and still maintain the current contribution margin ratio?

2. How many units must be sold to maintain the current net income if the sales price remains at P80.00and the 10% wage increase goes into effect?

3. The president believes that an additional P190,000 of machinery (to be depreciated at 10% annually) will increase present capacity (5,300 units) by 30%. If all units produced can be sold at the present price and the wage increase goes into effect, would the estimated net income before compare with the estimated net income after expansion.