Total revenue was $5,000,000 and total variable costs were 40% of sales. The production facility ran at 50% capacity.

The production manager wants to know the following:

What is the percent capacity required to break even?

When the economy recovers this year, if the plant runs at 100% capacity what net income could the company realize?

There is a possibility that sales could be so strong this year that the plant may be required to run at 120% capacity by offering a lot of overtime to its production workers. This would result in total variable costs rising by 35%.

On a strictly financial basis, should the production manager plan to exceed capacity or should he advise top management to freeze production at 100% capacity?