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: Line Item Description Amount Amount Sales $2,880,000 Cost of goods sold (1,400,000) Gross profit $1,480,000 Expenses: Selling expenses $400,000 Administrative expenses 387,500 Total expenses (787,500) Operating income $692,500 The division of costs between variable and fixed is as follows: Line Item Description Variable Fixed Cost of goods sold 75% 25% Selling expenses 60% 40% Administrative expenses 80% 20% 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. Required: 6. Determine the maximum operating income possible with the expanded plant.
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: Line Item Description Amount Amount Sales $2,880,000 Cost of goods sold (1,400,000) Gross profit $1,480,000 Expenses: Selling expenses $400,000 Administrative expenses 387,500 Total expenses (787,500) Operating income $692,500 The division of costs between variable and fixed is as follows: Line Item Description Variable Fixed Cost of goods sold 75% 25% Selling expenses 60% 40% Administrative expenses 80% 20% 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. Required: 6. Determine the maximum operating income possible with the expanded plant.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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:
| Line Item Description | Amount | Amount |
|---|---|---|
| Sales | $2,880,000 | |
| Cost of goods sold | (1,400,000) | |
| Gross profit | $1,480,000 | |
| Expenses: | ||
| Selling expenses | $400,000 | |
| Administrative expenses | 387,500 | |
| Total expenses | (787,500) | |
| Operating income | $692,500 |
The division of costs between variable and fixed is as follows:
| Line Item Description | Variable | Fixed |
|---|---|---|
| Cost of goods sold | 75% | 25% |
| Selling expenses | 60% | 40% |
| Administrative expenses | 80% | 20% |
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.
Required:
6. Determine the maximum operating income possible with the expanded plant.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Step 1: Introducing Marginal Costing
VIEWStep 2: Working for Computation of Total Variable Cost & Total Fixed Cost
VIEWStep 3: Working for Computation of Variable Cost to Sales Ratio & New Fixed Cost
VIEWStep 4: Working for Computation of maximum operating income possible with the expanded plant
VIEWSolution
VIEW
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education