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 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 $900,000 in yearly sales. The expansion will increasefixed costsby $212,500, but will not affect the relationship between sales andvariable 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) theunit 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 $692,500 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

8. Based on the data given, would you recommend accepting the proposal?

1. In favor of the proposal because of the reduction in break-even point.
2. In favor of the proposal because of the possibility of increasing income from operations.
3. In favor of the proposal because of the increase in break-even point.
4. Reject the proposal because if future sales remain at the 2014 level, the income from operations of will increase.
5. Reject the proposal because the sales necessary to maintain the current income from operations would be below 2014 sales.

Choose the correct answer. SelectabcdeItem 11

Contribution MarginandContribution Margin Ratio

For a recent year, McDonald's company-owned restaurants had the following sales and expenses (in millions):

Assume that thevariable costsconsist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions of dollars.) $million

b. What is McDonald's contribution margin ratio? Round to one decimal place. %

c. How much would income from operations increase if same-store sales increased by $811 million for the coming year, with no change in the contribution margin ratio orfixed costs? Round your answer to the closest million. $million