Break-Even Sales Under Present and Proposed Conditions BeeGee Company, operating

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:

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

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.

Required:

1. Determine the total variable costs and the total fixed costs for the current year.

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

3. Compute the break-even sales (units) for the current year.
_____ units

4. Compute the break-even sales (units) under the proposed program for the following year.
_____ units

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?
$_______ Income

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

Explanation / Answer

1) Total Variable cost Amount % Variable $ % Fixed $ Cost of goods sold      60,00,000 80         48,00,000 20 1200000 Selling expenses      40,00,000 75         30,00,000 25 1000000 Administrative expenses      30,00,000 70         21,00,000 30 900000 Total 1,30,00,000         99,00,000     31,00,000 2) Total Units Per unit Unit variable cost      99,00,000 150000                 66.00 Unit contribution cost (17,400,000-9,900,000)      75,00,000 150000                 50.00 3) Break-event sales = Fixed cost/ contribution per unit Break-event sales = 3,100,000/(7,500,000/150000) = 62000 units Break event sales = 62,000*116 = $7,192,000 4) Break-event sales = Fixed cost/ contribution per unit Break-event sales = 4,100,000/(7,500,000/150000) = 82000 units Break event sales = 82,000*116 = $9,512,000

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