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Question: PROBLEM 1 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 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) a) What is the operating income for 2016? 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.
a) Operating income for 2016 is P100,000 e) To achieve a similar operating income for 2017, 22,212 flashlights must be sold.
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