Int dring 20, I cone ster or 20Y a ale si a price of 260 per
Sales	$ 98,640,000
Cost of goods sold	(44,500,000)
Gross profit	$ 54,140,000
Expenses:
Selling expenses $8,000,000
Administrative expenses	3,000,000
Total expenses	(11,000,000)
Operating income	43,140,000

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

	Fixed	Variable
Cost of goods sold	28%	72%
Selling expenses	25%	75%
Administrative expenses	80%	20%

Management is considering a plant expansion program that will permit an increase of $8,631,000 (35,000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs.

Instructions

1. Determine for 20Y5 the total fixed costs and the total variable costs.
2. Determine for 20Y5 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 20Y5.
4. Compute the break-even sales (units) under the proposed program.
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $43,140,000 of operating income that was earned in 20Y5.
6. Determine the maximum operating income possible with the expanded plant.
7. If the proposal is accepted and sales remain at the 20Y5 level, what will be the operating income or loss for 20Y6?
8. Based on the data given, would you recommend accepting the proposal? Explain.

P11-2 Break-even sales under present and proposed conditions Keamey Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Ys. Its income statement for 20Ys is as follows: Chapter 11 CostVolumeProfa Analyis The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,6,51,000(95,000 units at $246,60) in yearly sales. The expansion will increase fixed costs by \$3,600,000 but witl noe affect the relationship between sates and variatse costs. Instructions 1. Determine for 20Y5 the total fixed costo and the total variable costs. 2. Determine for 20Ys(a) the unit variable cost and (b) the unit contribution manin: 3. Compute the break-even sales (units) for 20Y5. 4. Compute the hreak-even sales (units) under the proposed program. 5. Determine the amount of sales (units) that would be necewary ander the proposed propram to realize the $13,1,60,000 of operating income that was earned in 20Y5. 6. Defermine the maximum operating income possible with the expanded plant. 7. If the proposal is accepted and sales remain at the 205 level, what will be the operating incone of lons for 2076 ? 8. Based on the data given, would you reconnend accepting the proponal? Explain