ABC Company manufactures chairs.

Analysis of the firm’s financial records reveals the following

Average Selling Price P 2,000

Variable expenses

Direct Materials P 500

Direct Labor 300

Variable Overhead 200

Annual Fixed Cost

Selling P 500,000

Administrative 1,500,000

Compute for the sales volume ( in units ) needed to

A. Break Even
B. Earn P500,000 Before tax
C. Earn P600,000 After tax, assuming a 20% tax rate
D. Earn 20 percent on sales revenue in pre-tax income
E. Earn 20 percent on sales revenue in after-tax income, assuming a 20% tax rate

What will happen to break even point ( in units ) if

A. Direct Labor Cost increases by P200 per unit

B. Fixed Cost decreases by 20%

Assuming that currently , ABC’s sales is 3,000 chairs and is earning a net income of P1,000,000. What will
be the effect of the following on ABC’s net income ? ( Assume that the following are independent from
one another )

1. Replace a portion of its variable labor with an automated machining process. This would result
in 20% decrease in variable cost per unit , but 15% increase in fixed cost. Sales would remain the
same
2. Spend P 600,000 on a new sales campaign , which would increase sales by 20%
3. Increase the selling price by P250 per unit, which will cause a demand to drop by 10%
4. Add a second manufacturing facility which would double ABC’s fixed cost but would increase
sales by 60%
5. Lower the price by 5% , which would increase sales by 10%
6. Adding new designs that will cost an additional P100 per unit but will increase sales by 20
percent