Maurice Tutor

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    Argosy University/ Phoniex University/
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Category > Accounting Posted 12 Jul 2017 My Price 15.00

Break-Even Sales Under Present and Proposed Conditions

  1. 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.

    Required:

    1. Determine the total variable costs and the total fixed costs for the current year.

    Total variable costs $
    Total fixed costs $

    2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

    Unit variable cost $
    Unit contribution margin $

    3. Compute the break-even sales (units) for the current year.
    units

    4. Compute the break-even sales (units) under the proposed program for the following year.
    units

    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?

    1. In favor of the proposal because of the reduction in break-even point.
    2. In favor of the proposal because of the possibility of increasing income from operations.
    3. In favor of the proposal because of the increase in break-even point.
    4. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
    5. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.

    Choose the correct answer.

Answers

Maurice Tutor
(5)
Status NEW Posted 12 Jul 2017 09:07 PM My Price 15.00

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