ARA Skin Care, Inc. was incorporated on July 17, 2000, primarily to engage in the business...

  

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ARA Skin Care, Inc. was incorporated on July 17, 2000, primarily to engage in the business of aesthetic and dermatological services. The Company's principal office address is Maharlika Highway, Daang Sarile, Cabanatuan City 3100 Nueva Ecija. Throughout the years, the ever- evolving field of Cosmetic Dermatology has continued to be a relentless pursuit of novelty and innovation of the Company. The company financial statements have been prepared under the historical cost basis and are presented in Philippine peso, the Company's functional and presentation currency. All amounts are rounded to the nearest peso, except as otherwise indicated. On March 31, 2021, the CEO of ARA Skin Care, Inc. has asked you to participate in a project study that will launch a new product called "Dermacare". The projected income statement for the following period, without the new procedure, appears as follows: Projected Income Statement (000s omitted) Net sales P600,000 Variable cost of sales: Materials P250,000 Labor 80,000 Factory overhead 30,000 360,000 240,000 Manufacturing margin Fixed overhead 20,000 Gross profit P220,000 Operating expenses: Distribution 60,000 Selling and delivery 70,000 Marketing 36,000 General and administrative 24,000 190,000 Profit before tax P30,000 Provision for income tax 9,000 Profit after tax P21,000 The following information were made available by a team composed of marketing, production, finance, legal, human relations, and other key members of the management: a. Based on the market research conducted, the optimum introductory price for "Dermacare" is P250 per product and about 30,000 products can be sold at this price in the coming period. b. "Dermacare" non-fixed product cost will have the same rate of variability to net sales as the old product. c. Procedure of "Dermacare" will require new equipment and additional manpower, hence, fixed manufacturing overhead is expected to increase by 20%. d. The same selling and delivery facilities will be used. Thus, this expense will increase only by 4%. e. Distribution costs will remain unchanged because the new product will not require new investments on equipment and distribution centers. f. "Dermacare" should enter the market with a big bang. This will require heavy spending in marketing, although it will require heavy spending in marketing, although it will be limited to 10% of the net sales from "Dermacare". g. The new product will require additional general and administrative costs of P1,000,000. h. Analysis of cash flows show favorable results. Scenario(s): • If the company's minimum acceptable rate of return on sales for the new product is 5%, the "Dermacare" product will be implemented, what is number of units to be sold is at least? • If the maximum number of units in "Dermacare" relevant range is the excess production capacity of the company, what is the new product's projected profit before tax with sales of 25,000 units? Budgeted production capacity Normal production capacity Actual production capacity 450,000 units 400,000 units 350,000 units ARA Skin Care, Inc. was incorporated on July 17, 2000, primarily to engage in the business of aesthetic and dermatological services. The Company's principal office address is Maharlika Highway, Daang Sarile, Cabanatuan City 3100 Nueva Ecija. Throughout the years, the ever- evolving field of Cosmetic Dermatology has continued to be a relentless pursuit of novelty and innovation of the Company. The company financial statements have been prepared under the historical cost basis and are presented in Philippine peso, the Company's functional and presentation currency. All amounts are rounded to the nearest peso, except as otherwise indicated. On March 31, 2021, the CEO of ARA Skin Care, Inc. has asked you to participate in a project study that will launch a new product called "Dermacare". The projected income statement for the following period, without the new procedure, appears as follows: Projected Income Statement (000s omitted) Net sales P600,000 Variable cost of sales: Materials P250,000 Labor 80,000 Factory overhead 30,000 360,000 240,000 Manufacturing margin Fixed overhead 20,000 Gross profit P220,000 Operating expenses: Distribution 60,000 Selling and delivery 70,000 Marketing 36,000 General and administrative 24,000 190,000 Profit before tax P30,000 Provision for income tax 9,000 Profit after tax P21,000 The following information were made available by a team composed of marketing, production, finance, legal, human relations, and other key members of the management: a. Based on the market research conducted, the optimum introductory price for "Dermacare" is P250 per product and about 30,000 products can be sold at this price in the coming period. b. "Dermacare" non-fixed product cost will have the same rate of variability to net sales as the old product. c. Procedure of "Dermacare" will require new equipment and additional manpower, hence, fixed manufacturing overhead is expected to increase by 20%. d. The same selling and delivery facilities will be used. Thus, this expense will increase only by 4%. e. Distribution costs will remain unchanged because the new product will not require new investments on equipment and distribution centers. f. "Dermacare" should enter the market with a big bang. This will require heavy spending in marketing, although it will require heavy spending in marketing, although it will be limited to 10% of the net sales from "Dermacare". g. The new product will require additional general and administrative costs of P1,000,000. h. Analysis of cash flows show favorable results. Scenario(s): • If the company's minimum acceptable rate of return on sales for the new product is 5%, the "Dermacare" product will be implemented, what is number of units to be sold is at least? • If the maximum number of units in "Dermacare" relevant range is the excess production capacity of the company, what is the new product's projected profit before tax with sales of 25,000 units? Budgeted production capacity Normal production capacity Actual production capacity 450,000 units 400,000 units 350,000 units

Answer rating: 100% (QA)

1 This is assuming return on sales using profit BEF... View the full answer