Problem: The Flashtic Co. sells a special type of flashlights which does not use dry-cell batteries but operates with 1. "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. a) Using the contribution margin approach, prepare an income statement at present operation. b) and in Peso Sales? Show proof. c) profit of P150,000, how many units to sell? d) What is the break even point in units, If management plans to generate a At present operation, what is the operating leverage? e) What is the % increase in profit if current sales will increase by 20% next year? Robee, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. 2. Under plan A, the project will be financed by entirely with long term 9% bonds. The firm currently has no debt or preferred stock. Under plan B, Common stock will be sold to net the firm P20 per share; presently one million shares are outstanding. The corporate tax is 40%. a) Calculate the indifference level of EBIT associated with the two financing plans (an EBIT that both financing plans have the same EPS). Show the computations showing both financing plans have same EPS. b) If EBIT expected to be P3.10 million, which plan will result in higher EPS? Show computation.
Problem: The Flashtic Co. sells a special type of flashlights which does not use dry-cell batteries but operates with 1. "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. a) Using the contribution margin approach, prepare an income statement at present operation. b) and in Peso Sales? Show proof. c) profit of P150,000, how many units to sell? d) What is the break even point in units, If management plans to generate a At present operation, what is the operating leverage? e) What is the % increase in profit if current sales will increase by 20% next year? Robee, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. 2. Under plan A, the project will be financed by entirely with long term 9% bonds. The firm currently has no debt or preferred stock. Under plan B, Common stock will be sold to net the firm P20 per share; presently one million shares are outstanding. The corporate tax is 40%. a) Calculate the indifference level of EBIT associated with the two financing plans (an EBIT that both financing plans have the same EPS). Show the computations showing both financing plans have same EPS. b) If EBIT expected to be P3.10 million, which plan will result in higher EPS? Show computation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
100%
Transcribed Image Text:3:30
生 26%
Problem:
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
1.
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.
a)
Using the contribution margin
approach, prepare an income statement at
present operation.
b)
What is the break even point in units,
and in Peso Sales? Show proof.
If management plans to generate a
profit of P150,000, how many units to sell?
At present operation, what is the
c)
d)
operating leverage?
e)
current sales will increase by 20% next year?
What is the % increase in profit if
Robee, Inc. Is trying to decide how best to
finance a proposed P10 million capital investment.
Under plan A, the project will be financed by entirely
2.
with long term 9% bonds. The firm currently has no
debt or preferred stock. Under plan B, Common stock
will be sold to net the firm P20 per share; presently one
million shares are outstanding. The corporate tax is
40%.
a)
associated with the two financing plans (an EBIT
Calculate the indifference level of EBIT
that both financing plans have the same EPS).
Show the computations showing both financing
plans have same EPS.
b)
If EBIT expected to be P3.10 million,
which plan will result in higher EPS? Show
computation.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education