arskinner
Jun 21, 2012, 07:38 PM
I know we are not supposed to copy and paste questions, but I'm going to because that's the easiest way I know to do it.
Battonkill Company, operating at full capacity, sold 118,500 units at a price of $81 per unit during 2012. Its income statement for 2012 is as follows:
Sales $9,598,500
Cost of goods sold 3,402,000
Gross profit $6,196,500
Expenses:
Selling expenses $1,701,000
Administrative expenses 1,026,000
Total expenses 2,727,000
Income from operations $3,469,500
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 $972,000 in yearly sales. The expansion will increase fixed costs by $129,600, 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: $ 2929500
Total variable costs: $ 3199500
2. Determine for 2012 (a) the unit variable cost and (b) the unit contribution margin.
Unit variable cost: $ 27
Unit contribution margin: $ 54
3. Compute the break-even sales (units) for 2012.
54250 units
4. Compute the break-even sales (units) under the proposed program
56650 units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $3,469,500 of income from operations that was earned in 2012.
120900 units
6. Determine the maximum income from operations possible with the expanded plant.
$
I have figured out numbers 1-5, and I know the answers are correct. I am completely stumped with number 6. I know that:
sales - fixed costs - variable costs = income from operations
I think maybe I am figuring variable costs wrong, but I'm not positive. I just know that I'm messing up the equation somewhere. Please help!!
Battonkill Company, operating at full capacity, sold 118,500 units at a price of $81 per unit during 2012. Its income statement for 2012 is as follows:
Sales $9,598,500
Cost of goods sold 3,402,000
Gross profit $6,196,500
Expenses:
Selling expenses $1,701,000
Administrative expenses 1,026,000
Total expenses 2,727,000
Income from operations $3,469,500
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 $972,000 in yearly sales. The expansion will increase fixed costs by $129,600, 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: $ 2929500
Total variable costs: $ 3199500
2. Determine for 2012 (a) the unit variable cost and (b) the unit contribution margin.
Unit variable cost: $ 27
Unit contribution margin: $ 54
3. Compute the break-even sales (units) for 2012.
54250 units
4. Compute the break-even sales (units) under the proposed program
56650 units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $3,469,500 of income from operations that was earned in 2012.
120900 units
6. Determine the maximum income from operations possible with the expanded plant.
$
I have figured out numbers 1-5, and I know the answers are correct. I am completely stumped with number 6. I know that:
sales - fixed costs - variable costs = income from operations
I think maybe I am figuring variable costs wrong, but I'm not positive. I just know that I'm messing up the equation somewhere. Please help!!