Patience company is considering a proposal to replace an existing machine used for the manufacture of Product A. The new machine is expected to increase annual fixed costs by P120,000; however, variable costs should decrease by 20% because of a reduction in direct labor hours and more efficient usage of direct materials. Before this change was under consideration, Patience had budgeted Product A sales and cost for 2021 as follows: (1) Sales, P2,000,000; (b) variable costs, 70% of sales; and (c) fixed costs, P400,000.o Assuming that Patience implemented the above proposal by January 1, 2021, what would be the increase in budgeted operating profit for Product A for 2021? a. P160,000 b. 20% c. 47% d. none of the above
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Patience company is considering a proposal to replace an existing machine used for the manufacture of Product A. The new machine is expected to increase annual fixed costs by P120,000; however, variable costs should decrease by 20% because of a reduction in direct labor hours and more efficient usage of direct materials. Before this change was under consideration, Patience had budgeted Product A sales and cost for 2021 as follows: (1) Sales, P2,000,000; (b) variable costs, 70% of sales; and (c) fixed costs, P400,000.o Assuming that Patience implemented the above proposal by January 1, 2021, what would be the increase in budgeted operating profit for Product A for 2021?
a. P160,000
b. 20%
c. 47%
d. none of the above
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