Reference no: EM132574874
Question - French Broad Incorporation manufactures and sells cosmetics. In 2008 it operated at full capacity, manufactured and sold all 25,125 units at a price of $75 per unit during 2008. Its income statement (excerpts) for the year 2008 is as follows;
Sales $1,884,375
Cost of Goods sold ($1,100,000)
Gross profit/margin $784,375
Selling expenses ($125,000)
Administrative expenses ($125,000)
Income from operation / (EBIT) $534,375
The division of costs between fixed and variable is as follows:
|
|
Fixed
|
Variable
|
|
Cost of sales
|
40%
|
60%
|
|
Selling expenses
|
50%
|
50%
|
|
Administrative expenses
|
75%
|
25%
|
Management is considering a plant expansion program that will permit an increase of $487,500 in yearly sales. The expansion will increase fixed costs by $135,000, but will not affect the relationship between sales and variable costs.
Required -
a) Calculate the total fixed costs and total variable costs for 2008.
b) Calculate the unit variable cost and unit contribution margin.
c) Prepare marginal income statement for the year 2008.
d) Compute the Break Even Point ( in units and Dollars) for 2008.
e) Compute the Break Even Point ( in units and Dollars) under the proposed program.
f) Compute the Profit Volume Ratio and Margin of Safety for 2008.
g) Compute the Profit Volume Ratio and Margin of Safety for 2008 under the proposed program.
h) Determine the amount of sales (units) that would be necessary under the proposed program to realize the $534,375 of income from operations that was earned in 2008.
i) Calculate the maximum income from operations possible with the expanded plant
j) If the proposal is accepted and sales remain at the 2008 level, what will the income or loss from operations be for 2009.
k) Based on the data given, would you recommend accepting or rejecting the proposal? Explain.