Answered: Consider the following cost and pricing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider the following cost and pricing data of ABC Corp. on its Product X:
Price: P120.00.per unit
Profit Contribution: P90.00
Proposed additional Cost: P3 per unit (for quality improvement)
Current Profits: P2.4 million
Sales: 100,000 units.

A. Assuming that average variable costs are constant at all output levels, find
ABC Corp.’s total cost function before the proposed change.
B. Calculate the total cost function if the quality improvement is implemented.

UNANSWERED SUB-PARTS
C. Calculate ABC Corp.’s break-even output before and after the change, assuming it cannot increase its price.
D. Calculate the increase in sales that would be necessary with the quality improvement to increase profits to P2.7 million

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Formula
Sales- Variable Cost = Contribution
Net Profits = Total Contribution - Fixed Costs
Breakeven Point = (Fixed Costs / Contribution per Unit)
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