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home / study / business / accounting / questions and answers / break-even sales under present and proposed conditions ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. Question Break-Even Sales Under Present and Proposed Conditions BeeGee Company, operating at full capacity, sold 150,000 units at a price of $116 per unit during the current year. Its income statement is as follows: Sales $17,400,000 Cost of goods sold 6,000,000 Gross profit $11,400,000 Expenses: Selling expenses $4,000,000 Administrative expenses 3,000,000 Total expenses 7,000,000 Income from operations $4,400,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 80% 20% Selling expenses 75% 25% Administrative expenses 70% 30% Management is considering a plant expansion program for the following year that will permit an increase of $3,625,000 in yearly sales. The expansion will increase fixed costs by $1,000,000 but will not affect the relationship between sales and variable costs.

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $4,400,000 of income from operations that was earned in the current year. units

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

7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year? $ 8. Based on the data given, would you recommend accepting the proposal?

Explanation / Answer

5)

Required sales

= (Fixed Cost + Target profit) / Contribution per unit

=($3300000 + $4400000) / $50 per unit

= 154000 units

6)

7)

8)

The proposall should be accepted. With the increase in sales (along with the corresponding increase in costs), the profit of the company will increase by = 7025000 - 4400000 = $2625000

Cost elements Amounts ($) Ratio Variable cost($) Fixed cost ($) Cost of goods sold 6000000 80:20 4800000 1200000 selling expenses 4000000 75:25 3000000 1000000 Administrative expenses 3000000 70:30 2100000 900000 Total 13000000 9900000 3100000 Sales ($) 17400000 Less: variable cost ($) 9900000 Contribution ($) 7500000 Number of units sold 150000 Contribution per unit ($) 50

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