Maurice Tutor

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Category > Accounting Posted 04 Aug 2017 My Price 9.00

BeeGee Company

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.

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.

Answers

Maurice Tutor
(5)
Status NEW Posted 04 Aug 2017 08:08 PM My Price 9.00

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