Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Textbook Question
Chapter 20, Problem 2PB
Break-even sales under present and proposed conditions
Howard Industries Inc., operating at full capacity, sold 64,000 units at a price of $45 per unit during the current year. Its income statement is as follows:
The division of costs between variable and fixed is as follows:
Management is considering a plant expansion program for the following year 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
Determine the total fixed costs and the total variable costs for the current year.
Determine (A) the unit variable cost and (B) the unit contribution margin for the current year.
Compute the break-even sales (units) for the current year.
Compute the break-even sales (units) under the proposed program for the following year.
Determine the amount of sales (units) that would be necessary under the proposed program to realize the $692,500 of operating income that was earned in the current year.
Determine the maximum operating income possible with the expanded plant.
If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year?
Based on the data given, would you recommend accepting the proposal? Explain.
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Students have asked these similar questions
Compute the break-even point in dollar sales for next year assuming the machine is installed. Astro Company sold 28,500 units of its only product and reported income of $57,900 for the current year. During a planning session for next year’s activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $142,000. Total units sold and the selling price per unit will not change.
ASTRO COMPANY
Contribution Margin Income Statement
For Year Ended December 31
Sales ($50 per unit)
$ 1,425,000
Variable costs ($47 per unit)
1,339,500
Contribution margin
85,500
Fixed costs
27,600
Income
$ 57,900
Last year Minden Company introduced a new product and sold 25,100 units of it at a price
of $100 per unit. The product's variable expenses are $70 per unit and its fixed expenses
are $830,700 per year.
Required:
1. What was this product's net operating income (loss) last year?
2. What is the product's break-even point in unit sales and dollar sales?
3. Assume the company has conducted a marketing study that estimates it can increase
annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the
company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.),
what is the maximum annual profit that it can earn on this product? What sales volume
and selling price per unit generate the maximum profit?
4. What would be the break-even point in unit sales and in dollar sales using the selling
price that you determined in requirement 3?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2 Required 3…
Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows:
Annual sales
2,500
units
Selling price per unit
$
304
Variable costs per unit:
Production
$
125
Selling
$
49
Avoidable fixed costs per year:
Production
$
50,000
Selling
$
75,000
Allocated common fixed corporate costs per year
$
55,000
If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.At what selling price would the new product be just breaking even?
$232 per unit
$282 per unit
$250 per unit
$246 per unit
Chapter 20 Solutions
Financial And Managerial Accounting
Ch. 20 - Describe how total variable costs and unit...Ch. 20 - Which of the following costs would be classified...Ch. 20 - Describe how total fixed costs and unit fixed...Ch. 20 - In applying the high-low method of cost estimation...Ch. 20 - If fixed costs increase, what would be the impact...Ch. 20 - Prob. 6DQCh. 20 - Prob. 7DQCh. 20 - Both Austin Company and Hill Company had the same...Ch. 20 - Prob. 9DQCh. 20 - What does operating leverage measure, and how is...
Ch. 20 - High-low method The manufacturing costs of...Ch. 20 - Contribution margin Waite Company sells 250,000...Ch. 20 - Prob. 3BECh. 20 - Prob. 4BECh. 20 - Sales mix and break-even analysis Conley Company...Ch. 20 - Prob. 6BECh. 20 - Margin of safety Jorgensen Company has sales of...Ch. 20 - Classify Costs Following is a list of various...Ch. 20 - Identify cost graphs The following cost graphs...Ch. 20 - Identify activity bases For a major university,...Ch. 20 - Identify activity bases From the following list of...Ch. 20 - Identify fixed and variable costs Intuit Inc....Ch. 20 - Relevant range and fixed and variable costs Child...Ch. 20 - High-low method Ziegler Inc. has decided to use...Ch. 20 - High-low method for a service company Continental...Ch. 20 - Contribution margin ratio Young Company budgets...Ch. 20 - Contribution margin and contribution margin ratio...Ch. 20 - Break-even sales and sales to realize operating...Ch. 20 - Prob. 12ECh. 20 - Prob. 13ECh. 20 - Prob. 14ECh. 20 - Break-even analysis Media outlets such as ESPN and...Ch. 20 - Prob. 16ECh. 20 - Prob. 17ECh. 20 - Prob. 18ECh. 20 - Prob. 19ECh. 20 - Prob. 20ECh. 20 - Prob. 21ECh. 20 - Break-even sales and sales mix for a service...Ch. 20 - Margin of safety A. If Canace Company, with a...Ch. 20 - Prob. 24ECh. 20 - Operating leverage Beck Inc. and Bryant Inc. have...Ch. 20 - Classify costs Seymour Clothing Co. manufactures a...Ch. 20 - Prob. 2PACh. 20 - Prob. 3PACh. 20 - Prob. 4PACh. 20 - Prob. 5PACh. 20 - Contribution margin, break-even sales,...Ch. 20 - Classify costs Cromwell Furniture Company...Ch. 20 - Break-even sales under present and proposed...Ch. 20 - Prob. 3PBCh. 20 - Prob. 4PBCh. 20 - Prob. 5PBCh. 20 - Contribution margin, break-even sales,...Ch. 20 - Prob. 1MADCh. 20 - Prob. 2MADCh. 20 - Prob. 3MADCh. 20 - Break-even number of guests for a theme park...Ch. 20 - Prob. 1TIFCh. 20 - Communication Sun Airlines is a commercial airline...Ch. 20 - Profitability strategies Somerset Inc. has...Ch. 20 - Prob. 5TIFCh. 20 - Analysis of costs for a shipping department Sales...Ch. 20 - Taylor Corporation is analyzing the cost behavior...Ch. 20 - Kimber Company has the following unit costs for...Ch. 20 - Bolger and Co. manufactures large gaskets for the...Ch. 20 - Eagle Brand Inc. produces two products as follows:...
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