The Vice-President of sales, Redge Guerrero, estimates that the variable cost per product unit will increase...
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The Vice-President of sales, Redge Guerrero, estimates that the variable cost per product unit will increase from P80 to P95. The selling price is expected to remain at P120. The fixed costs for the year amount to P340,000. Last year, the company sold 30,000 units of products and expects to sell the same quantity this year. Guerrero is concerned about the loss in profitability because of increased costs. He asks you to prepare an evaluation of what changes are taking place. Required: 1. What is the contribution margin ratio for this year and last year? 2. What is the break-even point in sales pesos for this year and last year? 3. Calculate the margin of safety for last year and this year. 4. Compute the operating leverage for this year and last year. 5. Explain what would happen to profits this year if the sales volume could be increased by 15%. The Vice-President of sales, Redge Guerrero, estimates that the variable cost per product unit will increase from P80 to P95. The selling price is expected to remain at P120. The fixed costs for the year amount to P340,000. Last year, the company sold 30,000 units of products and expects to sell the same quantity this year. Guerrero is concerned about the loss in profitability because of increased costs. He asks you to prepare an evaluation of what changes are taking place. Required: 1. What is the contribution margin ratio for this year and last year? 2. What is the break-even point in sales pesos for this year and last year? 3. Calculate the margin of safety for last year and this year. 4. Compute the operating leverage for this year and last year. 5. Explain what would happen to profits this year if the sales volume could be increased by 15%.
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Answer rating: 100% (QA)
To evaluate the changes in the companys profitability we need to calculate various financial metrics based on the provided information 1 Contribution Margin Ratio The contribution margin ratio is the ... View the full answer
Related Book For
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu
Posted Date:
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