Problem 21-2A Break-Even Sales Under Present and Proposed Conditions Management
ID: 2374579 • Letter: P
Question
Problem 21-2A
Break-Even Sales Under Present and Proposed Conditions
Management is considering a plant expansion program that will permit an increase of $2,480,000 in yearly sales. The expansion will increase fixed costs by $272,000, but will not affect the relationship between sales and variable costs.
Instructions:
1. Determine for 2012 the total fixed costs and the total variable costs.
2. Determine for 2012 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 2012.
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 $1,100,000 of income from operations that was earned in 2012.
units
6. Determine the maximum income from operations possible with the expanded plant.
$
7. If the proposal is accepted and sales remain at the 2012 level, what will the income or loss from operations be for 2013?
$
Explanation / Answer
1. Determine for 2012 at the total fixed costs and the total variable costs
total fixed = 2,900,000
total variable = 5,920,000
2. Determine for 2012 (a) the unit variable cost and
5,920,000/80,000 = $74 per unit
(b) the unit contributing margin
$124 - $74 = $50
3. Compute the break-even sales (unit) for 2012
$2,900,000/$50 = 58,000 units
4. Compute the break-even sales (units) under the proposed program
(2,900,000 + 272,000)/50 = 63,440 units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $1,100,000 of income from the operations that was earned in 2012
(2,900,000 + 272,000 + 1,100,000)/50 = 85,440 units
6. Determined the maximum income from the operations possible with the expanded plant
2,480,000 + 9,920,000 = $12,400,000
$12,400,000/124 = 100,000 units
100,000 units*$50 CM per unit = $5,000,000
$5,000,000 - 2,900,000 - 272,000 = $1,828,000
7. If the proposal is accepted and the sales remain at the 2012 level, what will the income or loss from the operations be for 2013
80,000*50 - 2,900,000 - 272,000 = $828,000
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