Reference no: EM131942236

Question - Armstrong company, operating at full capacity, sold $80,000 units at a price of $124 per unit during 2012. Its income statement for 2012 is as follows:

Sales..............................$9,920,000

Cost of goods sold..............5,000,000

Gross profit......................$4,920,000

Expenses:

Selling expense...................$2,600,000

Administrative expense...........1,220,000

Total expenses.....................................3,820,000

Income from operations........................$1,100,000

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

Fixed variable

Cost of goods sold 25% 75%

Selling expenses 40% 60%

Administrative 50% 50%

Management is considering a plant expansion program that will permit an increase of $2,480,000 in yearly sales. The expansion will increase fixed costs by $272,000, but will not affect the relationship between sales and variable sales.

Instructions:

1. Determine for 2012 at the total fixed costs and the total variable costs

2. Determine for 2012 (a) the unit variable cost and (b) the unit contributing margin

3. Compute the break-even sales (unit) for 2012

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

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $1,100,000 of income from the operations that was earned in 2012

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

7. If the proposal is accepted and the sales remain at the 2012 level, what will the income or loss from the operations be for 2013

8. Based on the data given, would you recommend accepting the proposal?