Break-Even Sales Under Present and Proposed Conditions

Battonkill Company, operating at full capacity, sold 146,700 units at a price of $102 per unit during the current year. Its income statement for the current year is as follows:

Sales			$14,963,400
Cost of goods sold			5,304,000
Gross profit			$9,659,400
Expenses:
Selling expenses	$2,652,000
Administrative expenses	1,598,000
Total expenses			4,250,000
Income from operations			$5,409,400

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 $1,224,000 in yearly sales. The expansion will increase fixed costs by $163,200, 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	$4566200
Total variable costs	$4987800

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

Unit variable cost	$34
Unit contribution margin	$68

3. Compute the break-even sales (units) for the current year. units 67150

4. Compute the break-even sales (units) under the proposed program. units 69550

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,409,400 of income from operations that was earned in the current year. 149,100 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? $ 5,246,200 Income