The following is the Income Statement of Hope Company: HOPE COMPANY Income Statement For the Year...

  

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The following is the Income Statement of Hope Company: HOPE COMPANY Income Statement For the Year Ended Dec. 31, 20X1 Sales (90,000 units @ P4.00) Cost of goods sold: Direct materials Direct labor Factory overhead: Variable Fixed Gross margin P18,000 80,000 P90,000 90,000 98,000 P360,000 278,000 P 82,000 Selling expenses: Variable: Sales commissions* Shipping Total Fixed: Advertising, etc. Administrative expenses: Variable Fixed Net loss a. P 18,000 3,600 P 21,600 40,000 P 4,500 20,400 P61,600 24,900 (86,500) P (4,500) *Commissions based on peso sales, not physical units. All other variable expenses vary in terms of units sold. The company has a capacity of 150,000 units per year. The results for 20x1 have been disappointing. Top management is proposing a number of possible ways to make operations profitable in 20x2. Required: 1. The sales manager is torn between two courses of action (consider each situation indepen- dently). Prepare the budgeted income statement, using the contribution margin format. There will be three major sections: Sales, variable expense and fixed expense. Show costs per unit in an adjacent column. What would be the new net income or loss under each alternative? He has studied the market potentials and believes that a 15% slash in price would fill the plant to capacity. b. He wants to increase price by 25%, increase advertising by P150,000 and to boost commissions to 10% of sales. Under these circumstances, he thinks that sales volume will increase by 50%. 2. The President does not want to change the price. How much may advertising be increased or decreased to bring the production and sales up to 130,000 units and still earn a target profit of 5% of sales. Show computations. 3. A mail-order firm is willing to buy 60,000 units of product "if the price is right". Assume that the present market of 90,000 units at P4.00 each will not be disturbed. Hope Company will not pay any sales commission on these 60,000 units. The mail-order firm will pick up the units directly at the Hope factory. However, Hope must refund P24,000 of the total sales price as a promotional and advertising allowance for the mail-order firm. In addition, a special packaging will increase manufacturing costs on these 60,000 units by P0.10 per unit At what unit price must the mail-order firm be quoted for Hope to breakeven on total operations in 20x2? Show computations. The following is the Income Statement of Hope Company: HOPE COMPANY Income Statement For the Year Ended Dec. 31, 20X1 Sales (90,000 units @ P4.00) Cost of goods sold: Direct materials Direct labor Factory overhead: Variable Fixed Gross margin P18,000 80,000 P90,000 90,000 98,000 P360,000 278,000 P 82,000 Selling expenses: Variable: Sales commissions* Shipping Total Fixed: Advertising, etc. Administrative expenses: Variable Fixed Net loss a. P 18,000 3,600 P 21,600 40,000 P 4,500 20,400 P61,600 24,900 (86,500) P (4,500) *Commissions based on peso sales, not physical units. All other variable expenses vary in terms of units sold. The company has a capacity of 150,000 units per year. The results for 20x1 have been disappointing. Top management is proposing a number of possible ways to make operations profitable in 20x2. Required: 1. The sales manager is torn between two courses of action (consider each situation indepen- dently). Prepare the budgeted income statement, using the contribution margin format. There will be three major sections: Sales, variable expense and fixed expense. Show costs per unit in an adjacent column. What would be the new net income or loss under each alternative? He has studied the market potentials and believes that a 15% slash in price would fill the plant to capacity. b. He wants to increase price by 25%, increase advertising by P150,000 and to boost commissions to 10% of sales. Under these circumstances, he thinks that sales volume will increase by 50%. 2. The President does not want to change the price. How much may advertising be increased or decreased to bring the production and sales up to 130,000 units and still earn a target profit of 5% of sales. Show computations. 3. A mail-order firm is willing to buy 60,000 units of product "if the price is right". Assume that the present market of 90,000 units at P4.00 each will not be disturbed. Hope Company will not pay any sales commission on these 60,000 units. The mail-order firm will pick up the units directly at the Hope factory. However, Hope must refund P24,000 of the total sales price as a promotional and advertising allowance for the mail-order firm. In addition, a special packaging will increase manufacturing costs on these 60,000 units by P0.10 per unit At what unit price must the mail-order firm be quoted for Hope to breakeven on total operations in 20x2? Show computations.

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1 a Sales 150000 units x P 340 Variable expenses Direct materials Direct labor Variable overhead Var... View the full answer