Howard Industries Inc., operating at full capacity, sold 64,000 units at a price of $ 45 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 $ 900,000 in yearly sales. The expansion will increase fixed costs by $ 212,500, but will not affect the relationship between sales and variable costs.

Instructions
1. Determine the total fixed costs and the total variable costs for 2014.
2. Determine for 2014
(a) The unit variable cost
(b) The unit contribution margin.
3. Compute the break- even sales (units) for 2014.
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 $ 692,500 of income from operations that was earned in 2014.
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?
8. Based on the data given, would you recommend accepting the proposal?Explain.
 

Transcribed Image Text:

Sales .. ... $2,880,000 Cost of goods sold 1,400,000 Gross profit... $1,480,000 Expenses: Selling expenses... Administrative expenses. $400,000 387,500 Total expenses.. Income from operations 787,500 $ 692,500 Sales .. ... $2,880,000 Cost of goods sold 1,400,000 Gross profit... $1,480,000 Expenses: Selling expenses... Administrative expenses. $400,000 387,500 Total expenses.. Income from operations 787,500 $ 692,500

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