Sales Cost of goods sold $186,000,000 (102,000,000) $84,000,000 Gross profit Expenses: Selling expenses $16,000,000 Administrative expenses 5,200,000 Total expenses (21,200,000) Operating income $62,800,000 The division of costs between variable and fixed is as follows: Cost of goods sold Selling expenses Administrative expenses Variable Fixed 70% 30% 75% 25% 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,160,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will not affect the relationship between sales and variable costs.
Sales Cost of goods sold $186,000,000 (102,000,000) $84,000,000 Gross profit Expenses: Selling expenses $16,000,000 Administrative expenses 5,200,000 Total expenses (21,200,000) Operating income $62,800,000 The division of costs between variable and fixed is as follows: Cost of goods sold Selling expenses Administrative expenses Variable Fixed 70% 30% 75% 25% 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,160,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will not affect the relationship between sales and variable costs.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Sales
Cost of goods sold
Gross profit
Expenses:
$186,000,000
(102,000,000)
$84,000,000
Selling expenses
$16,000,000
Administrative expenses
5,200,000
Total expenses
(21,200,000)
Operating income
$62,800,000
The division of costs between variable and fixed is as follows:
Cost of goods sold
Selling expenses
Administrative
expenses
Variable
Fixed
70%
30%
75%
25%
50%
50%
Management is considering a plant expansion program for the following year that will permit an
increase of $11,160,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but
will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs
Total fixed costs
86,000,000 ✓
37,700,000 X
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
Unit contribution margin
86 V
✓
100
3. Compute the break-even sales (units) for the current year.
377,000 X units
4. Compute the break-even sales (units) under the proposed program for the following year.
417,000 X units
5. Determine the amount of sales (units) that would be necessary under the proposed program
to realize the $62,800,000 of operating income that was earned in the current year.
1,040,000 x units
6. Determine the maximum operating income possible with the expanded plant.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6ab5d67d-9ef1-4ae7-a536-0ac923b99a00%2Fcbf5e1bd-7aae-4fe1-ba8e-6c415df953ed%2Fo3qj9xi_processed.png&w=3840&q=75)
Transcribed Image Text:Sales
Cost of goods sold
Gross profit
Expenses:
$186,000,000
(102,000,000)
$84,000,000
Selling expenses
$16,000,000
Administrative expenses
5,200,000
Total expenses
(21,200,000)
Operating income
$62,800,000
The division of costs between variable and fixed is as follows:
Cost of goods sold
Selling expenses
Administrative
expenses
Variable
Fixed
70%
30%
75%
25%
50%
50%
Management is considering a plant expansion program for the following year that will permit an
increase of $11,160,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but
will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs
Total fixed costs
86,000,000 ✓
37,700,000 X
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
Unit contribution margin
86 V
✓
100
3. Compute the break-even sales (units) for the current year.
377,000 X units
4. Compute the break-even sales (units) under the proposed program for the following year.
417,000 X units
5. Determine the amount of sales (units) that would be necessary under the proposed program
to realize the $62,800,000 of operating income that was earned in the current year.
1,040,000 x units
6. Determine the maximum operating income possible with the expanded plant.
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Step 1: Introduction of cost-volume-profit (CVP) analysis.
VIEWStep 2: (1) Determination of Total Variable cost and Total Fixed cost.
VIEWStep 3: (3) Computation of Break even sales (units) for the current year.
VIEWStep 4: (4) Computation of Break even sales (units) for the proposed program.
VIEWStep 5: (5) Determination of required sales (units) to realize $62,800,000 of operating income.
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