home / study / business / accounting / questions and answers / break-even sales
ID: 2473689 • Letter: H
Question
home / study / business / accounting / questions and answers / break-even sales under present and proposed conditions ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. Question Break-Even Sales Under Present and Proposed Conditions BeeGee Company, operating at full capacity, sold 150,000 units at a price of $116 per unit during the current year. Its income statement is as follows: Sales $17,400,000 Cost of goods sold 6,000,000 Gross profit $11,400,000 Expenses: Selling expenses $4,000,000 Administrative expenses 3,000,000 Total expenses 7,000,000 Income from operations $4,400,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 80% 20% Selling expenses 75% 25% Administrative expenses 70% 30% Management is considering a plant expansion program for the following year that will permit an increase of $3,625,000 in yearly sales. The expansion will increase fixed costs by $1,000,000 but will not affect the relationship between sales and variable costs.
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $4,400,000 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?
Explanation / Answer
Maximum income possible is $ 4962500 from expanded plant
Break even sales
Break even sales in units (existing) = 3100000/50 = 62000 units
Break even sales in units (proposed)=4100000/50 = 82000units
Existing
Proposed
Total
No of units
Per unit
Additional
Total
Sales
17400000
150000
116
3625000
21025000
Variable cost
-9900000
150000
-66
-2062500
-11962500
COGS
-4800000
150000
-32
Selling
-3000000
150000
-20
Admin
-2100000
150000
-14
Contribution
7500000
150000
50
1562500
9062500
Fixed cost
-3100000
-1000000
-4100000
COGS
-1200000
Selling
-1000000
Admin
-900000
Net margin
4400000
150000
29.33
562500
4962500
Loss if sales is not increased = 4400000-3400000=1000000
Existing
Proposed
Total
No of units
Per unit
Additional
Total
Sales
17400000
150000
116
0
17400000
Variable cost
-9900000
150000
-66
0
-9900000
COGS
-4800000
150000
-32
Selling
-3000000
150000
-20
Admin
-2100000
150000
-14
Contribution
7500000
150000
50
0
7500000
Fixed cost
-3100000
-1000000
-4100000
COGS
-1200000
Selling
-1000000
Admin
-900000
Net margin
4400000
150000
29.33
-1000000
3400000
Yes the expansion should be accepted since additional net margin is positive.
Existing
Proposed
Total
No of units
Per unit
Additional
Total
Sales
17400000
150000
116
3625000
21025000
Variable cost
-9900000
150000
-66
-2062500
-11962500
COGS
-4800000
150000
-32
Selling
-3000000
150000
-20
Admin
-2100000
150000
-14
Contribution
7500000
150000
50
1562500
9062500
Fixed cost
-3100000
-1000000
-4100000
COGS
-1200000
Selling
-1000000
Admin
-900000
Net margin
4400000
150000
29.33
562500
4962500
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.