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.

1. 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. $

2. 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:

3. 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?

   1. In favor of the proposal because of the reduction in break-even point.
   2. In favor of the proposal because of the possibility of increasing income from operations.
   3. In favor of the proposal because of the increase in break-even point.
   4. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
   5. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.