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REQUIRED: WHAT PRICE MUST BE SET TO EARN A PROFIT OF 8% SALES

NANAY Company came to you for assistance when the bookkeeper presented the income statement showing large loss for the second year of operations. The loss of P70,000 was expected for the first year when the company operated at low level. However, the management of Nanay was shocked to discover a loss of P160,000 for the second year.

The president of the company could not understand how they could be operating at near-capacity and losing money. The company was consistently short of cash, a common problem when operations are expanding.

From your preliminary examination, you found very poor accounting records. You are satisfied that the data in the financial statements are correct and that there is no significant fraud. The company manufactures a line of kitchen cabinets. Because of the lack of detailed records, it is impossible to develop data about the cost of the product. The selling price was set by the president to undersell competition. Condensed income statements are presented below:

CoursHeroTranscribedText: "AMT CDMPAN'I" Income Statement 201? and 2013 201? E Sales {P40 each} P100 000 P400 000 IIIIIpera't'ing Expenses: Beginning Inventory of materials P 0 P 20,000 Operating expenses 190 000 510 000 Total P 190 000 P 590 000 Ending Inventory of materials 20,000 30,000 Expenses for the year P 1?0 000 P 5150 000 Net Loss l 10,000! I 100,000! Other data: Units produced 2,500 units 10,000 units Units sold 2,500 units 10,000 units Assets invested in business P100,000 F' 100,000 Capacity in units 12,000 12,000

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