Problem 21-2 (Algorithmic) Break-Even Sales Under Present and Proposed Conditions

Battonkill Company, operating at full capacity, sold 178,600 units at a price of $57 per unit during 2012. Its income statement for 2012 is as follows:

Sales			$10,180,200
Cost of goods sold			3,610,000
Gross profit			$6,570,200
Expenses:
Selling expenses	$1,805,000
Administrative expenses	1,083,000
Total expenses			2,888,000
Income from operations			$3,682,200

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

	Fixed		Variable
Cost of goods sold	40%		60%
Selling expenses	50%		50%
Administrative expenses	70%		30%

Management is considering a plant expansion program that will permit an increase of $798,000 in yearly sales. The expansion will increase fixed costs by $106,400, but will not affect the relationship between sales and variable costs.

Instructions:

1. Determine for 2012 the total fixed costs and the total variable costs.

Total fixed costs:	$
Total variable costs:	$

2. Determine for 2012 (a) the unit variable cost and (b) the unit contribution margin.

Unit variable cost:	$
Unit contribution margin:	$

3. Compute the break-even sales (units) for 2012. 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 $3,682,200 of income from operations that was earned in 2012. units

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

7. If the proposal is accepted and sales remain at the 2012 level, what will the income or loss from operations be for 2013? $ SelectIncomeLossItem 10

8. Based on the data given, would you recommend accepting the proposal? Explain.