5. PR.20.02 Break-Even Sales Under Present and Proposed Conditions Ilowarci frici ustrics Inc., orxrating at full capacity, sold 54,000 units at a price of 545 per unit curing the current year. Its income statornent is as follows: Sales $2,880,000 (1,400,000) Cost of goods sold Gross profit $1,480,000 Expenses: Selling expenses $400,000 Administrative experises 387,500 Total expenses (787,500) Operating Income 5692,500 The division of costs between variable and fixed is as follows: Variable Fixed Cost of gexde sold 759 75% 6096 10% Selling expenses Administrative cxpenses 809 20% Management is considering a plant expansion program for the following year that will permit an Increase of $900,000 In yearly sales. The expansion will increase fixed costs by $212,500 but will not affect the relationship between sales and variable costs, 1. Determine the total fixed costs and the total variable costs for the current year. Total variable costs $ Total fixed costs $ 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost $ Unit contribution margin $ 3. Compute the break-even sales (units) for the current year. units 4. Compute the break-even sales (units) under the proposed program for the following year. units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $692,500 of operating income that was earned in the current year. units 6. Determine the maximum operating income possible with the expanded plant. $ 7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? $ 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in break-even point. b. In favor of the proposal because of the possibility of increasing operating income. c. In favor of the proposal because of the increase in break-even point. d. Reject the proposal because if future sales remain at the current level, the operating income will increase. e. Reject the proposal because the sales necessary to maintain the current operating income would be below the current year sales