Question

Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 109,100 units at a price of $102 per unit during the current year. Its income statement for the current year is as follows: Sales $11,128,200 Cost of goods sold 3,944,000 Gross profit $7,184,200 Expenses: Selling expenses $1,972,000 Administrative expenses 1,190,000 Total expenses 3,162,000 Income from operations $4,022,200 The division of costs between fixed and variable is as follows: Fixed Variable Cost of goods sold 40% 60% Selling expenses 50% 50% Administrative expenses 70% 30% Management is considering a plant expansion program that will permit an increase of $918,000 in yearly sales.

The expansion will increase fixed costs by $122,400, but will not affect the relationship between sales and variable costs.

Required:

1. Total fixed costs $ 3,396,600

Total variable costs $ 3,709,400

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.

______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 $4,022,200 of income from operations that was earned in the current year.

______units

6. Determine the maximum income from operations possible with the expanded plant. $ _____

7. If the proposal is accepted and sales remain at the current level, what will the income from operations be for the following year?

$ _______

Answer 1