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Break-Even Sales Under Present and Proposed Conditions
Boleyn Company, operating at full capacity, sold 120,000 units at a price of $140 per unit during 2014. Its income statement for 2014 is as follows:
The division of costs between variable and fixed is as follows:
Management is considering a plant expansion program that will permit an increase of $2,800,000 in yearly sales. The expansion will increase fixed costs by $1,250,000, but will not affect the relationship between sales and variable costs.
Required:
1. Determine the total fixed costs and the total variable costs for 2014.
| Total variable costs | $[removed] |
| Total fixed costs | $[removed] |
2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.
| Unit variable cost | $[removed] |
| Unit contribution margin | $[removed] |
3. Compute the break-even sales (units) for 2014.
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4. Compute the break-even sales (units) under the proposed program.
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5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,650,000 of income from operations that was earned in 2014.
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6. Determine the maximum income from operations possible with the expanded plant.
$[removed]
7. If the proposal is accepted and sales remain at the 2014 level, what will the income or loss from operations be for 2015?
$[removed]
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.
