Break-even sales under present and proposed conditions Howard Industries Inc., operating at full capacity, sold 64,000 units at a price of $45 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: Selling expenses $2,000,000 (1,400,000) $1,480,000 $400,000 Administrative expenses 387,500 Total expenses (787,500) Operating income 1692,500 The division of costs between variable and fixed is as follows: Cost of goods sold Selling expenses Administrative expenses Variable Fixed 75% 25% 60% 50% 40% 20% Management is considering a plant expansion program for the following year that will permit an increase of $900,000 in yearly sales. The expansion with increase fixed costs by $212,500 but will not affect the relationship between seles and variable costs. Required 1. Determine the total fixed costs and the total variable costs for the current year Total variable costs Tutal fixed costs s 2. Determine (e) the unit variable cost and (b) the unit contribution margin for the current year unit variable cost s Unit contribution margin s 3. Compute the break-even sales (units) for the current year. units 4 Management is considering a plant expansion program for the following year that will permit an increase of $900,000 in yearly sales. The expansion will increase fixed costs by $212,500 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total fixed costs and the total variable costs for the current year Total variable costs Total fixed costs 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin s 3. Compute the break-even sales (units) for the current year 4. Compute the break-even sales (units) under the proposed program for the following year. 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $692,500 of operating income that was eamed in the current year 6. Determine the maximum operating income possible with the panded plant. 7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? 8. Besed on the deta 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 operating income. In favor of the proposal because of the increase in break-even point d. Reject the proposal because if future sales remain at the current level, the operating income will increase Reject the proposal because the seles necessary to maintain the current operating income would be below the current year sales. Choose the correct answer