Reference no: EM132806927

Statement of Income of Davao, Inc. which represents the operating results for the current fiscal year ending December 31. Davao had sales of 1,800 tons of product during the current year. The manufacturing capacity of Davao's facilities is 3,000 tons of product.

Consider each question's situation separately.

Sales P900,000
Variable costs
Manufacturing P315,000
Selling costs 180,000
Total variable costs P495.000
Contribution margin P405,000
Fixed costs
Manufacturing P 90,000
Selling 112,500
Administration 45.000
Total fixed costs P247.500
Net income before income taxes P157,500
Income taxes (40%) (63,0001
Net income after income taxes P 94_500

Question 1: Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao's costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity?

Question 2: If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and amounts next year, the after-tax income that Davao can expect for next year is?

Question 3: Without prejudice to your answers to previous questions, and assume that Davao plans to market its product in a new territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Davao's current after-tax income of P94,500?

Question 4: The breakeven volume in tons of product for the year is?