Reference no: EM133104039
Question - Tiktik Company distributes a lightweight lawn chair that sell for P150 per unit. Variable costs are P60 per unit, and fixed costs total P1,800,000 annually.
Required -
1. What is the product's CM Ratio?
2. Use the CM ratio to determine the break-even point in sales pesos.
3. The company estimates that sales will increase by P450,000 during the coming year due to increased demand. By how much should net income increase?
4. Assume that the operating results for last year were as follows:
Sales P3,600,000
Variable Costs 1,440,000
Contribution Margin 2,160,000
Fixed Costs 1,800,000
Net Operating Income 360,000
a. Compute the degree of operating leverage based on last year results
b. The president expects sales to increase by 15% next year. By how much should net income increase?
5. Refer to the original data. Assume the company sold 28,000 units last year. The sales manager is convinced that a 10% reduction in selling price, combined with a P700,000 increase in advertising expenditures, would cause annual sales in units to increase by 50%. Prepare two contribution margin income statements, one showing the results of last year's operations and one showing what the results of operations would be if these changes were made. Would you recommend that the company do as the sales manager suggests?
6. Refer to the original data. Assume again that the company sold 28,000 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants increase the sales commission by P20 per unit. He thinks that this move, combined with some increase in advertising, would cause annual sales to double. By how much could advertising be increased with profits remaining unchanged?
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