Kearney Company, operating at full capacity, sold 165,500 units at a price of $87 per unit during 20Y5. Its income statement for 20Y5 is as follows: Sales $14,398,500 Cost of goods sold (5,104,000) Gross profit $9,294,500 Expenses: Selling expenses $2,552,000 Administrative expenses 1,537,000 Total expenses (4,089,000) Operating income $5,205,500 The division of costs between fixed and variable is as follows: Fixed Variable Cost of good sold 40% 60% Selling expenses 50% 50% Administrative expenses 70% 30%

Management is considering a plant expansion program that will permit an increase of $1,305,000 (15,000 units at $87 per unit) in yearly sales. The expansion will increase fixed costs by $174,000, but will not affect the relationship between sales and variable costs.

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,205,500 of operating income that was earned in 20O5. units 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