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 | ||
| 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:
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 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 1 year 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)
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%...
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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