Question
In: Accounting
Break-Even Sales Under Present and Proposed Conditions Howard Industries Inc., operating at full capacity, sold 64,000...
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 follows:
| Sales | $2,880,000 | ||
| Cost of goods sold | (1,400,000) | ||
| Gross profit | $1,480,000 | ||
| Expenses: | |||
| Selling expenses | $400,000 | ||
| Administrative expenses | 387,500 | ||
| Total expenses | (787,500) | ||
| Operating income | $692,500 |
The division of costs between variable and fixed is as follows:
| Variable | Fixed | |||
| Cost of goods sold | 75% | 25% | ||
| Selling expenses | 60% | 40% | ||
| Administrative expenses | 80% | 20% | ||
Management is considering a plant expansion program for the following year 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 variable costs.
Required:
1. Determine the total fixed costs and the total variable costs for the current year.
| Total 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.
units
4. Compute the break-even sales (units) under
the proposed program for the following year.
units
5. Determine the amount of sales (units) that
would be necessary under the proposed program to realize the
$692,500 of operating income that was earned in the current
year.
units
6. Determine the maximum operating income
possible with the expanded plant.
$
7. If the proposal is accepted and sales remain
at the current level, what will the operating income or loss be for
the following year?
$
8. Based on the data given, would you recommend accepting the proposal?
- In favor of the proposal because of the reduction in break-even point.
- In favor of the proposal because of the possibility of increasing operating income.
- In favor of the proposal because of the increase in break-even point.
- Reject the proposal because if future sales remain at the current level, the operating income will increase.
- Reject the proposal because the sales necessary to maintain the current operating income would be below the current year sales.
Solutions
Expert Solution
Questions are solved with full format
Q 8. Option B
In favour of the proposal because of the possibility of increasing net operating income
Current year = $ 692,500
Revised year = $ 1,380,000
Difference = $ 687,500
Therefore the Net operating income will increase by
$ 687,500
ekkarill92 answered 6 months agoRelated Solutions
Break-Even Sales Under Present and Proposed Conditions Howard Industries Inc., operating at full capacity, sold 64,000...
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 follows:
Sales
$2,880,000
Cost of goods sold
1,400,000
Gross profit
$1,480,000
Expenses:
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
75%
25%
Selling expenses...
1. Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 148,400...
1. Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 148,400 units at
a price of $93 per unit during the current year. Its income
statement is as follows:
Sales
$13,801,200
Cost of goods sold
4,898,000
Gross profit
$8,903,200
Expenses:
Selling expenses
$2,449,000
Administrative expenses
1,457,000
Total expenses
3,906,000
Income from operations
$4,997,200
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $188 per unit during the current year. Its
income statement is as follows:
Sales $188,000,000
Cost of goods sold
(98,000,000)
Gross profit
$90,000,000
Expenses:
Selling expenses $14,000,000
Administrative expenses 17,800,000
Total expenses
(31,800,000)
Operating income
$58,200,000
The division of costs between variable and...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 163,500 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 163,500 units at
a price of $66 per unit during the current year. Its income
statement is as follows
Sales
$10,791,000
Cost of goods sold
3,828,000
Gross profit
$6,963,000
Expenses:
Selling expenses
$1,914,000
Administrative
expenses
1,144,000
Total expenses
3,058,000
Income from operations
$3,905,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 97,700 units...
Break-Even Sales Under Present and Proposed
Conditions
Darby Company, operating at full capacity, sold 97,700 units at a
price of $93 per unit during the current year. Its income statement
is as follows
Sales $9,086,100Cost of goods
sold 3,224,000Gross
profit $5,862,100Expenses: Selling
expenses$1,612,000 Administrative
expenses961,000 Total
expenses 2,573,000Income from
operations $3,289,100
The division of costs between variable and fixed is as
follows:
VariableFixedCost of goods
sold60% 40% Selling
expenses50% 50% Administrative
expenses30% 70%
Management is considering a plant expansion program for the
following year that will permit an increase of $744,000 in yearly...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 167,200 units...
Break-Even Sales Under Present and Proposed Conditions Darby
Company, operating at full capacity, sold 167,200 units at a price
of $111 per unit during the current year. Its income statement is
as follows: Sales $18,559,200 Cost of goods sold 6,586,000 Gross
profit $11,973,200 Expenses: Selling expenses $3,293,000
Administrative expenses 1,961,000 Total expenses 5,254,000 Income
from operations $6,719,200 The division of costs between variable
and fixed is as follows: Variable Fixed Cost of goods sold 60% 40%
Selling expenses 50% 50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 139,000 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 139,000 units at
a price of $72 per unit during the current year. Its income
statement is as follows:
Sales
$10,008,000
Cost of goods sold
3,552,000
Gross profit
$6,456,000
Expenses:
Selling expenses
$1,776,000
Administrative expenses
1,056,000
Total expenses
2,832,000
Income from operations
$3,624,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under
Present and Proposed Conditions
Portmann Company,
operating at full capacity, sold 1,000,000 units at a price of $188
per unit during the current year. Its income statement is as
follows:
Sales
$188,000,000
Cost of goods sold
(100,000,000)
Gross profit
$88,000,000
Expenses:
Selling expenses
$16,000,000
Administrative
expenses
12,000,000
Total expenses
(28,000,000)
Operating income
$60,000,000
The division of costs
between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 105,400 units...
Break-Even Sales Under Present and Proposed Conditions
Battonkill Company, operating at full capacity, sold 105,400
units at a price of $57 per unit during 2014. Its income statement
for 2014 is as follows:
Sales
$6,007,800
Cost of goods sold
2,128,000
Gross profit
$3,879,800
Expenses:
Selling expenses
$1,064,000
Administrative expenses
646,000
Total expenses
1,710,000
Income from operations
$2,169,800
The division of costs between fixed and variable is as
follows:
Fixed
Variable
Cost of goods sold
40%
60%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 167,200 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 167,200 units at
a price of $129 per unit during the current year. Its income
statement is as follows:
Sales
$21,568,800
Cost of goods sold
7,654,000
Gross profit
$13,914,800
Expenses:
Selling expenses
$3,827,000
Administrative expenses
2,279,000
Total expenses
6,106,000
Income from operations
$7,808,800
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
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