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?

1. A)In favor of the proposal because of the reduction in break-even point.
2. B)In favor of the proposal because of the possibility of increasing income from operations.
3. C)In favor of the proposal because of the increase in break-even point.
4. D)Rejecttheproposalbecauseiffuturesalesremainatthe2014level,theincomefromoperationsofwillincrease.
5. E)Rejecttheproposalbecausethesalesnecessarytomaintainthecurrentincomefromoperationswouldbebelow2014sales.