Break-Even Sales Under Present and Proposed Conditions

Battonkill Company, operating at full capacity, sold 174,900 units at a price of $135 per unit during 2014. Its income statement for 2014 is as follows:

Sales			$23,611,500
Cost of goods sold			8,370,000
Gross profit			$15,241,500
Expenses:
Selling expenses	$4,185,000
Administrative expenses	2,520,000
Total expenses			6,705,000
Income from operations			$8,536,500

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 $2,295,000 in yearly sales. The expansion will increase fixed costs by $306,000, 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 $8,536,500 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 or loss from operations be for 2015? $ SelectIncomeLossItem 10

Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 174,300 units at a price of $135 per unit during 2014. Its income statement for 2014 is as follows: Sales $23,6 Cost of goods sold 8,370,000 Gross profit $15,241,500 Selling expenses $4,185,000 Administrative expenses 2,520,000 Total expenses 6,705,000 $8,536,500 Income from operations The division of costs between fixed and Fixed Varial Cost of goods sold Administrative Management is considering a plant expansion program that will permit an increase of $2,295,000 in yearly sales. The expansion will increase fixed costs by $306,000, but will not affect the relationship between sales and variable costs. Required Determine for 2014 the tota fixed costs and the total variable costs. Total fixed costs 7204 500 Total variable costs 7870500 2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin. Unit variable cost 45 Unit contribution margin 90 3. Compute the break-even sales (units) for 2014. 80500 4. Compute the break-even sales (units) under the proposed program. 105550 3 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $8.536,500 of income from operations that was eamed in 2014. 200400 units Determine the m aximum income from operations possible with the expanded plant. 7. Ir the proposal is accepted and sales remain at the 2014 level, what will the income or loss from operations be for 2015? Income 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in break-even point. b. In favor of the proposal because of the possibility of increasing income from operations. c. In favor of the proposal because of the increase in break-even point. d. Reject the proposal because if future sales remain at the 2014 level, the income from operations of will increase e. Reject the proposal because the sales necessary to maintain the current income from operations would be below 2014 sales. Choose the correct