.The effect on profit if production of P is reduced to 500 units (to be sold at P12 each) and if production of S is increased to 2,500 units (to be sold at P10.50 each). (part of the plant in which P is produced can easily be adapted to produce S, but changes in quantities make changes in the sales price advisable. 6. The effect on profit if production of P is increased by 1,000 units to be sold at P10 each by adding a second shift. (Higher wages must be paid, thus increasing the variable cost of goods sold per unit to P3.50 for each additional unit.)
The Officers of the Company reviewed the profitability of the company's four products and the potential effect of several proposals for varying the product mix. An excerpt from the year's income statement and other date follows:
|
Total |
P |
Q |
R |
S |
|
|
Sales |
P62,600 |
P10,000 |
P18,000 |
P12,600 |
P22,000 |
|
Cost of Goods Sold |
44,274 |
4,750 |
7,056 |
13,968 |
18,500 |
|
Gross Profit |
P18,326 |
P5,250 |
P10,944 |
P(1,368) |
P3,500 |
|
Operating Expense |
12,012 |
1,990 |
2,976 |
2,826 |
4,220 |
|
Profit before income tax |
P6,314 |
P3,260 |
P7,968 |
P(4,194) |
P(720) |
|
Units Sold |
1,000 |
1,200 |
1,800 |
2,000 |
|
|
Sales Price Per Unit |
P10.00 |
P15.00 |
P7.00 |
P11.00 |
|
|
Variable Cost of goods sold per unit |
P2.50 |
P3.00 |
P6.50 |
P6.00 |
|
|
Variable operating expense per unit |
P1.17 |
P1.25 |
P1.00 |
P1.20 |
The total fixed cost is not expected to fluctuate as a result of changes under consideration.
Required:
5.The effect on profit if production of P is reduced to 500 units (to be sold at P12 each) and if production of S is increased to 2,500 units (to be sold at P10.50 each). (part of the plant in which P is produced can easily be adapted to produce S, but changes in quantities make changes in the sales price advisable.
6. The effect on profit if production of P is increased by 1,000 units to be sold at P10 each by adding a second shift. (Higher wages must be paid, thus increasing the variable cost of goods sold per unit to P3.50 for each additional unit.)
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