Question
Battonkill Company, operating at full capacity, sold 154,100 units at a price of $48 per unit during the current year. Its income statement for the
Battonkill Company, operating at full capacity, sold 154,100 units at a price of $48 per unit during the current year. Its income statement for the current year is as follows:
Sales | $7,396,800 | ||
Cost of goods sold | 2,624,000 | ||
Gross profit | $4,772,800 | ||
Expenses: | |||
Selling expenses | $1,312,000 | ||
Administrative expenses | 784,000 | ||
Total expenses | 2,096,000 | ||
Income from operations | $2,676,800 |
The division of costs between fixed and variable is as follows:
Fixed | Variable | |||
Cost of goods sold | 40% | 60% | ||
Selling expenses | 50% | 50% | ||
Administrative expenses | 70% | 30% |
Management is considering a plant expansion program that will permit an increase of $576,000 in yearly sales. The expansion will increase fixed costs by $76,800, but will not affect the relationship between sales and variable costs.
Required:
1. Determine for the current year the total fixed costs and the total variable costs.
Total fixed costs | $ |
Total variable 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. units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $2,676,800 of income from operations that was earned in the current year. units
6. Determine the maximum income from operations possible with the expanded plant. $
7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year? $ Income
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