Int dring 20, I cone ster or 20Y a ale si a price of 260 per
Sales
$ 98,640,000
Cost of goods sold
(44,500,000)
Gross profit
$ 54,140,000
Expenses:
Selling expenses
$8,000,000
Administrative expenses
3,000,000
Total expenses
(11,000,000)
Operating income
§ 43,140,000
The division of costs between fixed and variable is as follows:
Fixed
Variable
Cost of goods sold
28%
72%
Selling expenses
25%
75%
Administrative expenses
80%
20%
Management is considering a plant expansion program that will permit an increase of $8,631,000 (35,000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs.
Instructions
Determine for 20Y5 the total fixed costs and the total variable costs.Determine for 20Y5 (a) the unit variable cost and (b) the unit contribution margin.Compute the break-even sales (units) for 20Y5.Compute the break-even sales (units) under the proposed program.Determine the amount of sales (units) that would be necessary under the proposed program to realize the $43,140,000 of operating income that was earned in 20Y5.Determine the maximum operating income possible with the expanded plant.If the proposal is accepted and sales remain at the 20Y5 level, what will be the operating income or loss for 20Y6?Based on the data given, would you recommend accepting the proposal? Explain.
Obj.2,3 2.a.$96.60
P11-2 Break-even sales under present and proposed conditions
Kearney Company,operating at full capacity,sold 400,000 units at a price of $246.60 per unit during 20Y5.Its income statement for 20Y5 is as follows:
Sales Cost of goods sold Gross profit Expenses: Selling expenses Total expenses Operating income
$98,640,000 44,500,000 $$4,140,000
$8,000,000 3,000,000
11,000,000 $43,140,000
Chapter 1Cost-Volume-Profit Analysis
501
the division of costs between fixed and variable is as follows
Fixed 28% 25% 80%
Variable 72% 75% 20%
Cost of goods sold Selling expenses Administrative expenses
Management is considering a plant expansion program that will permit an increase of $8,631,000 G5.000 units at $246.60) in yearly sales.The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs.
Instructions 1. Determine for 20Y5 the total fixed costs and the total variable costs. 2. Determine for 20Y5 (a the unit variable cost and (b the unit contribution margin 3. Compute the break-even sales (units) for 20Y5 4.Compute the break-even sales (units under the proposed program. 5. Determine the amount of sales (units) that would be neceswary under the proposed program to realize the $43,140,000 of operating income that was earned in 20Y5. 6. Determine the maximum operating income possible with the expanded plant 7. f the proposal is accepted and sales remain at the 20Y5 level, what will be the operating income or loss for 20Y6 8. Based on the data given, would you recommend accepting the proposal? Explain.
