Reference no: EM131841360

Problem - Break-even sales under present and proprosed conditions

Gaelic Industries Inc., operating at full capacity, sold 22,350 units at a price of $150 per unit during 2010. Its income statement for 2010 is as follows:

Sales...............................................$3,352,500

Cost of goods sold..........................$2,200,000

gross profit......................................$1,152,500

EXPENSES:

Selling expenses......$250,000

Admin expenses.......$250,000

Total expenses......................$500,000

Income from operations.................$652,500

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

Fixed Variable

cost of sales.....................60% 40%

selling expenses..............50% 50%

admin expenses...............55% 45%

Management is considering a plant expansion program and will permit an increase of $900,000 in yearly sales. The expansion will increase fixed costs by $242,500, but will not affect the relationship between sales and variable costs.

Instructions:

1. Determine for 2010 the total fixed costs and variable costs.

2. Determine for 2010 (a) the unit variable costs and (b) the unit contribution margin.

3. Compute the break-even sales (units) for 2010.

4. Compute the break-even sales (units) under the propsed program

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $652,500 of income from operations that earned in 2010.

6. Determine the maximum income from operations possible with the expanded plant.

7. If the proposal is accepted and sales remain at the 2010 level, what will the income or loss from operations be for 2011?