Break-Even Sales Under Present and Proposed Conditions

Bunny Market, preforming at maximum capacity, sold 1,000,000 units at a price of $186 per unit during the current year. Its' income statement is.....

Sales			$186,000,000
Cost of goods sold			(99,000,000)
Gross profit			$87,000,000
Expenses:
Selling expenses	$14,000,000
Administrative expenses	12,400,000
Total expenses			(26,400,000)
Operating income			$60,600,000

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

Variable		Fixed
Cost of goods sold	70%		30%
Selling expenses	75%		25%
Administrative expenses	50%		50%

Management is considering a plant expansion for the following year that will permit an increase of $9,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs.

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- Find the total variable costs and the total fixed costs for the current year.

variable costs	???
fixed costs	???

- Solve for the unit variable cost and (b) the unit contribution margin for the current year.

Unit variable cost	???
Unit contribution margin	???

- Determine the break-even sales (units) for the current year.

- Determine the break-even sales (units) under the proposed program for the following year.

- Determine the amount of sales (units) that would be necessary under the proposed program to realize the $60,600,000 of operating income that was earned in the current year.

- Compute the maximum operating income possible with the expanded plant.

- If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year?