Break-even sales under present and proposed conditionsHoward Industries Inc., operating at full capacity, sold 64,000 units at aprice of $45 per unit during the current year. Its income statement is asfollows: 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 soldSelling expensesAdministrative expenses 75%60% 80% 25%140%20* Management is considering a plant expansion program for the following year that will permit an increase of $900,000 in yearly sales. Theexpansion will increase fixed costs by $212,500 but will not affect therelationship between sales and variable costs. Instructions1. Determine the total fixed costs and the total variable costs for thecurrent year. 2. Determine (a) the unit variable cost and (b) the unit contributionmargin for the current year.B. Compute the break-even sales (units) for the current year. 4. Compute the break-even sales (units) under the proposed program forthe following year.5. Determine the amount of sales (units) that would be necessary underthe proposed program to realize the $692,500 of income from operationsthat was earned in the current year. 6. Determine the maximum income from operations possible with theexpanded plant.7. If the proposal is accepted and sales remain at the current level, whatwill the income or loss from operations be for the following year?8. Based on the data given, would you recommend accepting theproposal? Explain.
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 Selling expenses Administrative expenses |
75% 60% 80% |
25% 140% 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.
Instructions
1. Determine the total fixed costs and the total variable costs for the
current year.
2. Determine (a) the unit variable cost and (b) the unit contribution
margin for the current year.
B. Compute the break-even sales (units) for the current year.
4. Compute the break-even sales (units) under the proposed program for
the following year.
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.
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, whatwill the income or loss from operations be for the following year?
8. Based on the data given, would you recommend accepting the
proposal? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
