Question
In: Accounting
Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 146,700 units...
Break-Even Sales Under Present and Proposed Conditions
Battonkill Company, operating at full capacity, sold 146,700 units at a price of $57 per unit during the current year. Its income statement for the current year is as follows:
| Sales | $8,361,900 | ||
| Cost of goods sold | 2,964,000 | ||
| Gross profit | $5,397,900 | ||
| Expenses: | |||
| Selling expenses | $1,482,000 | ||
| Administrative expenses | 893,000 | ||
| Total expenses | 2,375,000 | ||
| Income from operations | $3,022,900 |
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 $741,000 in yearly sales. The expansion will increase fixed costs by $98,800, but will not affect the relationship between sales and variable costs.
Required:
1. Determine for the current year the total fixed costs and the total variable costs.
| Total fixed costs | $ |
| Total variable 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.
units
5. Determine the amount of sales (units) that
would be necessary under the proposed program to realize the
$3,022,900 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 or loss from operations
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 income from operations.
- 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 income from operations will increase.
- Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
Choose the correct answer.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 120,200 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 120,200 units at
a price of $132 per unit during the current year. Its income
statement is as follows:
Sales
$15,866,400
Cost of goods sold
5,632,000
Gross profit
$10,234,400
Expenses:
Selling expenses
$2,816,000
Administrative expenses
1,672,000
Total expenses
4,488,000
Income from operations
$5,746,400
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 122,850 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 122,850 units at
a price of $108 per unit during the current year. Its income
statement for the current year is as follows:
Sales
$13,267,800
Cost of goods sold
6,552,000
Gross profit
$6,715,800
Expenses:
Selling expenses
$3,276,000
Administrative expenses
3,276,000
Total expenses
6,552,000
Income from operations
$163,800
The division of costs between fixed and variable is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%...
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