Determine the amount of sales (units) that would be necessary under the proposed program to realize the $4,400,000 of income from operations that was earned in the current year.

ASSIGNMENT

BeeGee Company, operating at full capacity, sold 150,000 units at a price of $116 per unit during
the current year. Its income statement is as follows:

Sales $17,400,000
Cost of Goods Sold 6,000,000
Gross Profit $11,400,000
Expenses
Selling Expenses $4,000,000
Administrative Expenses 3,000,000
Total Expenses 7,000,000
Income from Operations $4,400,000

Consideration
Management is considering a plant expansion program for the following year that will permit an increase
of $3,625,000 in yearly sales. The expansion will increase fixed costs by $1,000,000 but will not affect
the relationship between sales and variable costs.

The division of costs between variable and fixed is as follows:

Variable Fixed
Cost of goods sold 80% 20%
Selling expenses 75% 25%
Administrative expenses 70% 30%

Required:

1. Determine the total varible costs and the total fixed costs for the current year?

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year?
a.
b. $50

3. Compute the break-even sales (units) for the current year?

4. Compute the break-even sales (units) under the proposed program for the following year?

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $4,400,000 of income from operations that was earned in the current year.

6. Determine the maximum income from operations possible with the expanded plant.

7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year?

8. Based on the data given, would you recommend accepting the proposal? Explain

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