Reference no: EM131817415

Problem - Break-even sales under present and proposed conditions

Battonkill Company, operating at full capacity, sold 176,600 units at a price of $81 per unit during 2010. Its income statement for 2010 is as follows:

Sales			$14,304,600
Cost of goods sold			5,076,000
Gross profit			$9,228,600
Expenses:
Selling expenses		$2,538,000
Administrative expenses		1,512,000
	Total expenses		4,050,000
Income from operations			$5,178,600

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

	Fixed	Variable
Cost of sales	40%	60%
Selling expenses	50%	50%
Administrative expenses	70%	30%

Management is considering a plant expansion program that will permit an increase of $1,134,000 in yearly sales. The expansion will increase fixed costs by $151,200, but will not affect the relationship between sales and variable costs.

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

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

3. Compute the break-even sales in units for 2010.

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

5. Determine the amount of sales in units that would be necessary under the proposed program to realize the $5,178,600 of income from operations that was 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?