A process making 2000 metric tons of a product selling for P1.60 per kg. total cost...

A process making 2000 metric tons of a product selling for P1.60 per kg. total cost of production is 84.375% of the total sales while the ratio of the fixed cost to the variable cost is 0.35:1.0. Variable costs consist of 50% labor cost and 40% raw material cost. if the management proposes increasing the selling price by 10% due to 20% increase in the cost of its raw materials,

a. determine the peso change in net profit at full capacity if tax rate is 34%

b. determine the % change in the breakeven point

c. determine the fixed cost per poundat new break even point

Expert Solution

Calculation of Variable and Fixed Cost

Particulars	Amount
Total Revenue(200010001.6)	3200000
Total Cost(3200000*84.375%)	2700000
Total Fixed Cost(2700000*0.35/1.35)	700000
Total Variable Cost(2700000-700000)	2000000
Total Material Cost(2000000*40%)	800000
Total Labour Cost(2000000*50%)	1000000
Other Variable Cost(2000000-800000-1000000)	200000

Preperation of Income Statement

Particulars	Scenario 1 Calculation	Scenario 1	Scenario 2 Calculation	Scenario 2
Sales Revenue		3200000	20001000(1.6*110%)	3520000
Less Variable Cost
Material Cost	800000		800000*120%	(960000)
Labour Cost	1000000			(1000000)
Other Variable Cost	200000	(2000000)		(200000)
Contribution		1200000		1330000
Less: Fixed Cost		(700000)		(700000)
Net Profit before tax		500000		660000
Less: Tax	500000*34%	(170000)	660000*34%	(224400)
Net Profit after Tax		330000		435600

a) Percentage Change in Net Profit

(435600-330000)/330000*100=32%

b) Determining Percentage Change in Break even Point

Particulars	Scenario1 calculation	Scenario 1	Scenario 2 calculation	Scenario 2
Fixed Cost		700000		700000
Contibution/unit	1200000/2000000kg	0.6	1330000/2000000kg	0.665
BEP in units	700000/0.6	1166667kg	700000/0.665	1052632kg
BEP in pound	1166667*1.6	1866667	1052632*1.76	1852632

% Change in BEP units			(1166667-1052632)/1166667*100	-9.77%
% Change in BEP pound			(1866667-1852632)/1866667*100	-0.75%

c)

Fixed cost per unit in pound at new BEP

700000/1052632kg = 0.66 Pound per unit

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