Reference no: EM132938794
Question - Dackers Company, a wholesaler of jeans, had the following income statement for last year:
Sales (40,000 pairs at P35) P1,400,000
Cost of sales 800,000
Gross margin P 600,000
Selling expenses P350,000
Administrative expenses 190,000 540,000
Income P 60,000
Mr. Dackers informs you that the only variables costs are the cost of sales and P2 per unit selling costs. All administrative expenses are fixed. In planning for the coming year, Mr. Dackers expects his selling price to remain constant, with unit volume increasing by 20%. He also forecasts the following changes in costs and is concerned about how they will affect profitability.
Variable costs:
Cost of goods sold up P 1.50 per unit
Selling costs up to P 0.10 per unit
Fixed costs:
Selling costs up to P 40,000
Administrative costs up to P 30,000
REQUIRED -
1. Compute the expected income for the coming year, assuming that all forecasts are met.
2. Determine the number of units that Dackers will have to sell in the coming year to earn the same profit as the current year.
3. Mr. Dackers is disturbed at the results of requirements 1 and 2. He asks you by how much he must raise his selling price to earn P60,000 selling 48,000 units.