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CoursHeroTranscribedText: Priscilla Systems manufactures tape decks and currently sells 18,500 units annually to producers of sound reproduction systems. The president of the company anticipates a 15% increase in the cost per unit of direct labor on January 1, 2010. He expects all other costs and expenses to remain unchanged. The president has asked you to assist him in developing the information he needs to formulate a reasonable product strategy for next year. You are satisfied that volume is the primary factor affecting costs and expenses and have separated the semi-variable costs into their fixed and variable segments. Beginning and ending inventories remain at a level of 1,000 units. Below are the current year data assembled for your analysis: Sales price per unit P100 Variable costs per unit: Direct materials P15 Direct labor 25 Factory overhead, selling & administrative expenses 30 70 Contribution margin per unit (30%) P30 Fixed costs P390,000 REQUIRED: 1. What increase in selling price is necessary to cover the 13% increase in direct labor cost and still maintain the current contribution margin ratio of 30%? 2. How many tape decks must be sold to maintain the current operating income of P350,000 if the sales price remains at P100 and the 15% wage increase goes into effect? (Hint: first compute the unit contribution margin.) 3. The president believes that an additional P700,000 of machinery (to be depreciated at 20% annually) will increase present capacity (20,000 units) by 25%. If all tape decks produced can be sold at the present price of P100 per unit and the wage increase goes into effect, how would the estimated operating income before capacity is increased compare with the estimated operating income at full capacity before and after the expansion

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