After reviewing its cost structure (variable costs of P6.00 per unit and monthly fixed costs of P120,000) potential market, Fore Company established what it considered to be a reasonable selling price. The company expected to sell 50,000 units per month and planned its monthly results as follows:
Sales P500,000
Variable costs 300,000
Contribution Margin 200,000
Fixed costs 120,000
Income before taxes 80,000
Income taxes (40%) 32,000
Net income 48,000
Compute for the following:
1. If the company determined that a particular advertising campaign had a high probability of increasing sales by 3,000 units, how much could it pay for such campaign without reducing its planned profits?
2. A plan includes an increase in advertising cost of P20,000. What is the minimum increase in unit sales to compensate for the increase in advertising cost?
3. If the company wants a P60,000 before-tax profit, how many units must it sell?