Question
Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 125,900 units at a price of $117 per unit during 2014.
Break-Even Sales Under Present and Proposed Conditions
Battonkill Company, operating at full capacity, sold 125,900 units at a price of $117 per unit during 2014. Its income statement for 2014 is as follows:
Sales | $14,730,300 | ||
Cost of goods sold | 5,226,000 | ||
Gross profit | $9,504,300 | ||
Expenses: | |||
Selling expenses | $2,613,000 | ||
Administrative expenses | 1,560,000 | ||
Total expenses | 4,173,000 | ||
Income from operations | $5,331,300 |
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 $1,287,000 in yearly sales. The expansion will increase fixed costs by $171,600, but will not affect the relationship between sales and variable costs.
Required:
1. Determine for 2014 the total fixed costs and the total variable costs.
Total fixed costs | $ |
Total variable costs | $ |
2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.
Unit variable cost | $ |
Unit contribution margin | $ |
3. Compute the break-even sales (units) for 2014.
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 $5,331,300 of income from operations that was earned in 2014.
units |
6. Determine the maximum income from operations possible with the expanded plant. $
7. If the proposal is accepted and sales remain at the 2014 level, what will the income from operations be for 2015?
$
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