In: Accounting
Hall Industries operates at full capacity. It sold 64,000 units
at a price of $45 per...
Hall Industries operates at full capacity. It sold 64,000 units
at a price of $45 per unit during the current year. Its profit
& loss 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
387,500 787,500
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 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:
- Determine the total fixed costs and the total variable costs
for the current year.
- Determine the unit variable cost and the unit contribution
margin for the current year.
- Compute the break-even sales (units) for the current year.
- Compute the break-even sales (units) under the proposed program
for the following year.
- Determine the amount of sales (units) that would be necessary
under the proposed program to achieve $692,500 of income from
operations that was earned in the current year.
- Determine the maximum income from operations possible with the
expanded plant.
- If the proposal is accepted and sales remain at the current
level, what will the income or loss from operations be for the
following year?
- Would you recommend accepting the program based on the data
given?