The Flashtic Co. sells a special type of flashlights which does not use dry-cell batteries but operates with “sun energy”. The product would incur a total variable cost of P18 per unit to manufacture and sell. The plant has a capacity of 20,000 units per month at P180,000 fixed costs and expenses, excluding its monthly interest charges of P45,000. This product has a contribution margin of 55%. At present the plant is operating at 80% of its capacity. Management plans to increase its current sales by 20% next year.   Question: Assuming the plant will operate at 100% plant capacity, what is the margin of safety in Peso sales, in units and in percentage?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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The Flashtic Co. sells a special type of flashlights which does not use dry-cell batteries but operates with “sun energy”. The product would incur a total variable cost of P18 per unit to manufacture and sell. The plant has a capacity of 20,000 units per month at P180,000 fixed costs and expenses, excluding its monthly interest charges of
P45,000. This product has a contribution margin of 55%. At present the plant is operating at 80% of its capacity. Management plans to increase its current sales by 20% next year.

 

Question: Assuming the plant will operate at 100% plant capacity, what is the margin of safety in Peso sales, in units and in percentage?

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