Colt Industries Inc., operating at full capacity, sold 30,000 units at a price o
ID: 2377801 • Letter: C
Question
Colt Industries Inc., operating at full capacity, sold 30,000 units at a price of $56 per unit during 2012. Its income statement for 2012 is as follows:
sales...............................................................1,680,000
costs of goods sold......................................... 740,000
gross profit...................................................... 940,000
expenses:
selling expenses..........................260,000
admin expenses..........................136,000
total expenses..........................................396,000
income from operations...................................544,000
The division of costs between fixed and variable is as follows:
...................................................................................fixed........................variable.............
costs of goods sold....................................................40%...........................60%...............
selling expenses.........................................................20%..........................80%................
administrative expenses.............................................50%..........................50%...............
Management is considering a plant expansion program that will permit an increase of $1,120,000 in yearly sales. The expansion will increase fixed costs by $400,000, but will not affect the relationship between sales and variable costs.
1. Determine for 2012 the total fixed costs and the total variable costs.
2. Determine for 2012 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) 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 $544,000 of income from operations that was earned in 2012.
6. Determine the maximum income from operations possible with the expanded plant.
7. If the proposal is accepted and sales remain at the 2012 level, what will the income or loss from operations be for 2013?
8. Based on the data given, would you recommend accepting the proposal?
Explanation / Answer
1) TOTAL FIXED COST 416000 TOTAL VARIABLE COST 720000 2) UNIT VC 24 UNIT CONTRI 32 3) BREAK EVEN SALES 728000 4) BREAK EVEN UNITS 13000 5) amount of sales NECESSARY 1428000 6) MAX INCOME 783920 7) INCOME 144000 8) YES PROPOSAL SHOULD BE ACCEPTED