minny me
Jul 31, 2008, 12:01 PM
Good Earth Garden Tools Inc. operating at full capacity, sold 292,000 units at a price of $45 per unit during 2003. Its income statement for 2003 is as follows:
Sales $13,140,0...
Cost of goods sold 8,000,000
Gross profit .. $5,140,000
Operating expenses:
Selling expenses .. $1,500,000
Administrative expenses ... 2,000,000
Total operating expenses ... 3,500,000
Income from operations $1,640,000
The division of costs between fixed and variable is as follows:
Fixed Variable
Cost of Sales 25% 75%
Selling expenses 40% 60%
Administrative expenses 80% 20%
Management is considering a plant expansion program that will permit an increase of $2,250,000 in yearly sales. The expansion will increase fixed costs by $600,000 but will not affect the relationship between sales and variable costs.
Instruction:
1. Determine for 2003 the total fixed cost and the total variable cost.
2. Determine for 2003 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 2003
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 $1,640,000 of income from operations that was earned in 2003.
6. Determine the maximum income from operations possible with the expanded plant.
7. If the proposal is accepted and sales remain at the 2003 level, what will the income or loss from operations be for 2004?
8. Based on the data given, would you recommend accepting the proposal? Explain.
Sales $13,140,0...
Cost of goods sold 8,000,000
Gross profit .. $5,140,000
Operating expenses:
Selling expenses .. $1,500,000
Administrative expenses ... 2,000,000
Total operating expenses ... 3,500,000
Income from operations $1,640,000
The division of costs between fixed and variable is as follows:
Fixed Variable
Cost of Sales 25% 75%
Selling expenses 40% 60%
Administrative expenses 80% 20%
Management is considering a plant expansion program that will permit an increase of $2,250,000 in yearly sales. The expansion will increase fixed costs by $600,000 but will not affect the relationship between sales and variable costs.
Instruction:
1. Determine for 2003 the total fixed cost and the total variable cost.
2. Determine for 2003 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 2003
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 $1,640,000 of income from operations that was earned in 2003.
6. Determine the maximum income from operations possible with the expanded plant.
7. If the proposal is accepted and sales remain at the 2003 level, what will the income or loss from operations be for 2004?
8. Based on the data given, would you recommend accepting the proposal? Explain.