Cost Behavior and Cost-Volume-Profit AnalysisWarren / Reeve / DuchacExercise 19-13 solution |
Battonkill Company, operating at full capacity, sold 112,800 units at a price of $150 per unit during 2010. Its income statement for 2010 is as follows:
The division of costs between fixed costs and variable costs is as follows:
Management is considering a plant expansion program that will permit an increase of $1,500,000 in yearly sales. The expansion will increase fixed costs by $200,000, but will not affect the relationship between sales and variable costs.
1. Determine for 2010 the total fixed costs and the total variable costs.
Total fixed costs: $5,160,000
Total variable costs: $5,640,000
2. Determine for 2010 the (a) unit variable cost and (b) the unit contribution margin.
a. Unit variable cost: $50
b. Unit contribution margin: $100
3. Compute the break-even sales in units for 2010.
51,600 units
4. Compute the break-even sales in units under the proposed program.
53,600 units
5. Determine the amount of sales in units that would be necessary under the proposed program to realize the $6,120,000 of income from operations that was earned in 2010.
114,800 units
6. Determine the maximum income from operations possible with the expanded plant.
$6,920,000
7. If the proposal is accepted and sales remain at the 2010 level, what will the income or loss from operations be for 2011?
$5,920,000 Income
