Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 56

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 ,s as follows:

The division of costs between variable and fixed is as follows:

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.
Instructions
1. Determine the total variable costs and the total fixed costs for the current year.
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
3. 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 $4,400,000 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, 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 Explain.