break even sales under present and proposed conditions Break-Even Sales Under Pr
ID: 2572406 • Letter: B
Question
break even sales under present and proposed conditions Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 156,100 units at a price of $84 per unit during the current year. Its income statement for the current year is as follows Sales Cost of goods sold Gross profit Expenses $13,112,400 4,648,000 $8,464,400 Selling expenses $2,324,000 Administrative expenses 1,400,000 Total expenses 3,724,000 Income from operations $4,740,400 The division of costs between fixed and variable is as follows: Fixed Variable Cost of goods sold Selling expenses Administrative expenses Management is considering a plant expansion program that will permit an increase of $1,176,000 in yearly sales. The expansion will increase fixed costs by $156,800, but will not affect the relationship between sales and variable costs. 60% 50% 30% 40% 50% 70%Explanation / Answer
Answer 2.
Selling Price = $84
Number of units sold = 156,100
Total Variable Costs = $4,370,800
Unit Variable Cost = Total Variable Costs / Number of units sold
Unit Variable Cost = $4,370,800 / 156,100
Unit Variable Cost = $28.00
Unit Contribution Margin = Selling Price - Unit Variable Cost
Unit Contribution Margin = $84 - $28
Unit Contribution Margin = $56
Answer 3.
Fixed Costs = $4,001,200
Unit Contribution Margin = $56
Break-even Sales (units) = Fixed Costs / Unit Contribution Margin
Break-even Sales (units) = $4,001,200 / $56
Break-even Sales (units) = 71,450
Answer 4.
Proposed Program:
Fixed Costs = $4,001,200 + $156,800
Fixed Costs = $4,158,000
Unit Contribution Margin = $56
Break-even Sales (units) = Fixed Costs / Unit Contribution Margin
Break-even Sales (units) = $4,158,000 / $56
Break-even Sales (units) = 74,250
Answer 5.
Proposed Program:
Desired Income from Operations = $4,740,400
Required unit sales = (Fixed Cost + Desired Income from Operations) / Unit Contribution Margin
Required unit sales = ($4,158,000 + $4,740,400) / $56
Required unit sales = 158,900
Answer 6.
Current Year Sales = $13,112,400
Proposed program is expected to increase sales by $1,176,000
Sales under Proposed Program = $13,112,400 + $1,176,000
Sales under Proposed Program = $14,288,400
Selling Price = $84
Number of units sold = $14,288,400 / $84
Number of units sold = 170,100
Contribution Margin = Number of units sold * Unit Contribution Margin
Contribution Margin = 170,100 * $56
Contribution Margin = $9,525,600
Fixed Costs = $4,158,000
Income from Operations = Contribution Margin - Fixed Costs
Income from Operations = $9,525,600 - $4,158,000
Income from Operations = $5,367,600
Answer 7.
Number of units sold = 156,100
Contribution Margin = Number of units sold * Unit Contribution Margin
Contribution Margin = 156,100 * $56
Contribution Margin = $8,741,600
Fixed Costs = $4,158,000
Income from Operations = Contribution Margin - Fixed Costs
Income from Operations = $8,741,600 - $4,158,000
Income from Operations = $4,583,600
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