Break-Even Sales Under Present and Proposed Conditions Battonkill Company, opera
ID: 2461751 • Letter: B
Question
Break-Even Sales Under Present and Proposed Conditions
Battonkill Company, operating at full capacity, sold 107,100 units at a price of $135 per unit during 2014. Its income statement for 2014 is as follows:
The division of costs between fixed and variable is as follows:
Management is considering a plant expansion program that will permit an increase of $1,350,000 in yearly sales. The expansion will increase fixed costs by $180,000, but will not affect the relationship between sales and variable costs.
Required:
1. Determine for 2014 the total fixed costs and the total variable costs.
2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 2014.
units
4. Compute the break-even sales (units) under the proposed program.
units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,233,500 of income from operations that was earned in 2014.
units
6. Determine the maximum income from operations possible with the expanded plant.
$
7. If the proposal is accepted and sales remain at the 2014 level, what will the income or loss from operations be for 2015?
$ SelectIncomeLossItem 10
8. Based on the data given, would you recommend accepting the proposal?
In favor of the proposal because of the reduction in break-even point.
In favor of the proposal because of the possibility of increasing income from operations.
In favor of the proposal because of the increase in break-even point.
Reject the proposal because if future sales remain at the 2014 level, the income from operations of will increase.
Reject the proposal because the sales necessary to maintain the current income from operations would be below 2014 sales.
Choose the correct answer.
Selectabcde
Explanation / Answer
1) Fixed Variable Cost of goods sold 5130000 40% 60% 2052000 3078000 Selling expenes 2565000 50% 50% 1282500 1282500 Administrative expenses 1530000 70% 30% 1071000 459000 Total 4405500 4819500 Total fixed costs 4405500 Total variable costs 4819500 2) Total fixed costs 4405500 4585500 Total variable costs 4819500 50950 Number of units 107100 Variable cost/unit = 4819500/107100 45 Selling price per unit 135 Contribution per unit = selling price - variable cost 90 3) Break even sales ( units) = Total fixed cost / contribution per unit = 4405500 / 90 = 48950 units 4) Revised Fixed cost ( proposed programmme) = 4405500 + 180000 = 4585500 Contribution per unit ( remains unchanged) 90 Break even sales ( units) = Total fixed cost / contribution per unit = 4585500 / 90 = 50950 units 5) Revised fixed cost 4585500 Desired profit 5233500 Total value 9819000 Contribution per unit ( remains unchanged) 90 Units required to achieve above value = Total value / contribution per unit = 9819000 / 90 = 109100 units 6) Sales (14458500 + 1350000) 15808500 Less : Variable cost (107100 + 1350000/135 ) * 45 5269500 Contribution 10539000 Less : Fixed cost 4585500 Net operating income 5953500 7) Sales 14458500 Less : Variable cost (107100 * 45) 4819500 Contribution 9639000 Less : Fixed cost 4585500 Net operating income 5053500 8) The correct statement is as below : In favor of the proposal because of the possibility of increasing income from operations.