Chapter 5, Problem 2PA

1.

To determine

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

$\text{Break-even}\text{point}\text{in}\text{Sales}\left(\text{units}\right)=\frac{\text{Fixed}\text{Costs}}{\text{Contribution}\text{Margin}\text{per}\text{unit}}$

the total fixed costs and the total variable costs for the current year.

2(A)

To determine

the unit variable cost for the current year.

(B)

To determine

the unit contribution margin for the current year.

3.

To determine

To compute: the break-even sales (units) for the current year.

4.

To determine

To compute: the break-even sales (units) under the proposed program for the following year.

5.

To determine

the amount of sales (units) if the company desires a target profit of $15,000,000.

6.

To determine

the maximum income from operations possible with the expanded plant.

7.

To determine

the income or loss from operations for the following year if the proposal is accepted and the sales remains same.

8.

To determine

To explain: whether to recommend for accepting the proposal.