Question
Break-Even Sales and Cost-Volume-Profit Chart For the coming year, Cleves Company anticipates a unit selling price of $138, a unit variable cost of $69, and
Break-Even Sales and Cost-Volume-Profit Chart
For the coming year, Cleves Company anticipates a unit selling price of $138, a unit variable cost of $69, and fixed costs of $807,300.
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Required:
1. Compute the anticipated break-even sales (units). units
2. Compute the sales (units) required to realize a target profit of $345,000. units
3. Construct a cost-volume-profit chart, assuming maximum sales of 23,400 units within the relevant range. From your chart, indicate whether each of the following sales levels would produce a profit, a loss, or break-even.
$2,263,200 $2,014,800 $1,614,600 $1,214,400 $966,000 4. Determine the probable income (loss) from operations if sales total 18,700 units. If required, use the minus sign to indicate a loss. $
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Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 167,200 units at a price of $120 per unit during the current year. Its income statement is as follows:
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Sales $20,064,000 Cost of goods sold 7,120,000 Gross profit $12,944,000 Expenses: Selling expenses $3,560,000 Administrative expenses 2,120,000 Total expenses 5,680,000 Income from operations $7,264,000 The division of costs between variable and fixed is as follows:
Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50% Administrative expenses 30% 70% Management is considering a plant expansion program for the following year that will permit an increase of $1,800,000 in yearly sales. The expansion will increase fixed costs by $240,000, but will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed 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 $7,264,000 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? $
8. Based on the data given, would you recommend accepting the proposal?
- In favor of the proposal because of the reduction in break-even point.
- In favor of the proposal because of the possibility of increasing income from operations.
- In favor of the proposal because of the increase in break-even point.
- Reject the proposal because if future sales remain at the current level, the income from operations will increase.
- Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
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