Break-Even Sales Under Present and Proposed Conditions

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Description

Break-Even Sales Under Present and Proposed
Conditions

Armstrong Company, operating at full capacity,
sold 80,000 units at a price of $124 per unit during 2012. Its income statement
for 2012 is as follows:

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The division of costs betweenfixed costsandvariable costsis as follows:

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Management is considering a plant expansion
program that will permit an increase of $2,480,000 in yearly sales. The
expansion will increase fixed costs by $272,000, 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) theunit 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 $1,100,000 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?
$

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