Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. 2. The management has decided to increase the advertising budget by P250,000. This will increase sales revenues by P1,000,000. By how much will operating income increase or decrease as a result of this action? 3. Suppose sales revenues exceed the estimated amount on the income statement by P1,500,000. Prepare a new income statement and determine the amount of understatement of net income. 4. Compute the margin of safety based on the original income statement. 5. Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income?
Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. 2. The management has decided to increase the advertising budget by P250,000. This will increase sales revenues by P1,000,000. By how much will operating income increase or decrease as a result of this action? 3. Suppose sales revenues exceed the estimated amount on the income statement by P1,500,000. Prepare a new income statement and determine the amount of understatement of net income. 4. Compute the margin of safety based on the original income statement. 5. Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:JJ Company produces a variety of products. The company's project income
statement for the coming year is:
Sales (218,000 units @ P60)
Total variable costs
Contribution margin
Total fixed costs
Operating income
P13,080,000
7.630,000
5,450,000
4,250,000
P 1,200,000
Required:
1. Compute the contribution margin per unit, and calculate the break-even point in
units.
2. The management has decided to increase the advertising budget by P250,000.
This will increase sales revenues by P1,000,000. By how much will operating
income increase or decrease as a result of this action?
3. Suppose sales revenues exceed the estimated amount on the income statement
by P1,500,000. Prepare a new income statement and determine the amount of
understatement of net income.
4. Compute the margin of safety based on the original income statement.
5. Compute the degree of operating leverage based on the original income
statement. If sales revenues are 8% greater than expected, what is the
percentage increase in operating income?
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