AAA Electronics Company manufactures, among others, keyboards. The company has a Bluetooth keyboard that sells for P300. At present, the keyboard manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling P200 per keyboard, of which 60% is direct labor costs. Last year, the company sold 30,000 of these keyboards, while fixed expenses amount toP2,000,000.

1.Compute for last year's CM ratio and the break-even point in units and in pesos.

2.Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by P10 per keyboard. If this change takes place and the selling price per keyboard remains constant at P300, what will be next year's CM ratio and the break-even point in units and in pesos?

3.Based on No. 2, if the expected change in variable expenses takes place, how many units will have to be sold next year to earn the same net operating income as last year?

4.Based on No. 2 if the president feels that the company must raise the selling price of its keyboards but wants to maintain last year's CM ratio, what selling price per keyboard must it change next year to cover the increased labor costs?

5.Refer to the original data. The company is discussing the construction of a new automated manufacturing plant which would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. What would the new CM ratio and the new break-even point in units and pesos be?

6.Lastly, based on No. 5:

a.If a new plant is built, how many units will have to be sold next year to earn the same net operating income as last year?

b. Assume the new plant is built and that next year the company manufactures and sells 30,000 units. Prepare a contribution format income statement.

c.If you were a member of top management, would you be in favor of constructing a new plant? Why or why not?