Break-Even Sales Under Present and Proposed Conditions

Boleyn Company, operating at full capacity, sold 120,000 units at a price of $140 per unit during 2014. Its income statement for 2014 is as follows:

The division of costs between variable and fixed is as follows:

Management is considering a plant expansion program that will permit an increase of $2,800,000 in yearly sales. The expansion will increase fixed costs by $1,250,000, but will not affect the relationship between sales and variable costs.

Required:

1. Determine the total fixed costs and the total variable costs for 2014.

Total variable costs

$

Total fixed 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 $5,650,000 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? $

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.

Sales Cost of goods sold $16,800,000 6,200,000 $10,600,000 Expenses Selling expenses $3,400,000 1,550,000 4,950,000 $5,650,000