Problem 12 #7

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 folr Sales Cost of goods sold Gross profit Expenses: $2,880,000 1,400,000 $1,480,000 Selling expenses 400,000 Administrative expenses 387,500 Total expenses 787,500 Income from operations 692,500 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold Selling expenses Administrati expenses 75% 60% 80% 25% 40% 20% Management is considering a plant expansion program for the following vear 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 varlable costs Required Determine the total fixed costs and the total variable costs for the current year otal 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 3. Compute the break-even sales (units) for the current year 1,600,000 587,500 V 25V 20 V 29,375 units 4. Compute the break-even sales (units) under the proposed program for the following year 40,000 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 earned in the current year 74,625 units 6. Determine the maximum income from operations possible with the expanded plant 187,500 x 7. If the proposal is accepted and sales remain at the current level, what vill the income or loss from operations be for the following year? 5 480,000 Incomev 8. Based on the data given, would you recommend accepting the proposal