Howard Industries Inc., operating at full capacity, sold 64,000
units at a price of $45 per unit during 2014. Its income statement
for 2014 is as follows:
The division of costs between variable and fixed is as
follows:
Management is considering a plant expansion program 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:
1. Determine the total fixed costs and the total variable costs for 2014.
| Total variable costs | $ |
| Total fixed costs | $ |
2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.
| Unit variable cost | $ |
| Unit contribution margin | $ |
3. Compute the break-even sales (units)
for 2014.
units
4. Compute the break-even sales (units)
under the proposed program.
units
5. Determine the amount of sales
(units) that would be necessary under the proposed program to
realize the $692,500 of income from operations that was earned in
2014.
units
6. Determine the maximum income from
operations possible with the expanded plant.
$
7. If the proposal is accepted and
sales remain at the 2014 level, what will the income or loss from
operations be for 2015?
$ SelectIncomeLossItem 10
Homework Answers
1. Determine the total fixed costs and the total variable costs for 2014.
| Total variable costs | $ 1,600,000 |
| Total fixed costs | $ 587,500 |
2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.
| Unit variable cost | $ 25.00 |
| Unit contribution margin | $ 20.00 |
3. Compute the break-even
sales (units) for 2014.
29,375 units
4. Compute the break-even sales (units) under the proposed program.
40,000 units
5. Determine the amount
of sales (units) that would be necessary under the proposed program
to realize the $692,500 of income from operations that was earned
in 2014.
74,625 units
6. Determine the maximum
income from operations possible with the expanded plant.
$ 880,000
7. If the proposal is accepted and sales remain
at the 2014 level, what will the income or loss from operations be
for 2015?
$ 480,000 Income
| 1. Determine the total fixed costs and the total variable costs for 2014. | |||
| Total Variable Cost | Total fixed Cost | ||
| Cost of Good Sold | $ 1,050,000 | $ 350,000 | |
| Selling Expenses | $ 240,000 | $ 160,000 | |
| Administrative Expenses | $ 310,000 | $ 77,500 | |
| Total | $ 1,600,000 | $ 587,500 | |
| Total variable costs | $1,600,000 | ||
| Total fixed costs | $587,500 | ||
| 2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin. | |||
| Total | Per Unit | ||
| Sales | $ 2,880,000 | $ 45.00 | |
| Variable cost | $ 1,600,000 | $ 25.00 | |
| Contribution | $ 1,280,000 | $ 20.00 | |
| Unit variable cost | $25.00 | ||
| Unit contribution margin | $20.00 | ||
| 3. Compute the break-even sales (units) for 2014. | |||
| Break-even sales (units) = Total Fixed Cost/Contribution per unit | |||
| Break-even sales (units) =587500/20 | |||
| Break-even sales (units) = 29375 Units | |||
| 29,375 units | |||
| 4. Compute the break-even sales (units) under the proposed program. | |||
| Break-even sales (units) = Total Fixed Cost/Contribution per unit | |||
| Break-even sales (units) =(587500+212500)/20 | |||
| Break-even sales (units) = 40000 Units | |||
| 40,000 units | |||
| 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $692,500 of income from operations that was earned in 2014. | |||
| Required sales (units) = (Total Fixed Cost+Required Income)/Contribution per unit | |||
| Required sales (units =(587500+212500+692500)/20 | |||
| Required sales (units = 74,625 Units | |||
| 74,625 units | |||
| 6. Determine the maximum income from operations possible with the expanded plant. | |||
| Total | |||
| Sales | $ 3,780,000 | ||
| Variable cost | $ 2,100,000 | ||
| Contribution | $ 1,680,000 | ||
| Total fixed Cost | $ 800,000 | ||
| Net Income | $ 880,000 | ||
| 7. If the proposal is accepted and sales remain at the 2014 level, what will the income or loss from operations be for 2015? | |||
| Total | |||
| Sales | $ 2,880,000 | ||
| Variable cost | $ 1,600,000 | ||
| Contribution | $ 1,280,000 | ||
| Total fixed Cost | $ 800,000 | ||
| Net Income | $ 480,000 | ||
Add Answer to:
Howard Industries Inc., operating at full capacity, sold 64,000
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