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Question: The Brownout Enthusiasts Company, maker of high-quality flashlights, has experienced a steady growth over the last 6 years. However, increased competition has led Mr. Darkknight, the president, to believe that an aggressive campaign is needed next year to maintain the company's present growth. The company's accountant has presented Mr. Darkknight with the following data for the current year, 2016, for the use in preparing next year's advertising campaign. Cost Schedules Variable Costs Direct labor per flashlight - 8.00 Direct matrials - 4.00 Variable overhead - 3.00 Total Variable cost per flashlight - 15.00 Fixed costs Manufacturing - 25,000 Selling - 40,000 Administrative - 70,000 Total fixed costs - 135,000 Selling price per flashlight - 25.00 Sales, 2016 (20,000 flashlights) - 500,000 Mr. Darkknight has set the sales target for 2017 at a level of P 550,000 (22,000 flashlights). Required: (Ignore any income tax considerations) d) If the company spends the additional P 10,000 for advertising in 2017, what is the sales level in pesos required to equal 2016 operating income? e) If the company will spend additional P10,000 for advertising in 2017, direct labor cost per flashlight will decrease by P3. Find the company's level of sales (or quantity of unit sales) wherein its 2017 income will be indifferent from its 2016 operating income.
d) To equal 2016 operating income, the company must have a 2017 sales level of P 597,500. e) The company must sell 23,250 units of flashlights in order to have income in 2017 that is indifferent from its 2016 operating income.
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