# Managerial Accounting: PR21-2A Battonkill Company, operating at full capacity

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Managerial Accounting

PR21-2A Break-Even Sales Under Present and Proposed Conditions

Battonkill Company, operating at full capacity, sold 112,800 units at a price of $150 per unit during 2014. Its income statement for 2014 is as follows:

Sales 16,920,000

Cost of goods sold 6,000,000

Gross profit 10,920,000

Expenses:

Selling expenses 3,000,000

Administrative expenses 1,800,000

Total expenses 4,800,000

Income from operations 6,120,000

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

Fixed Variable

Cost of goods sold 40% 60%

Selling expenses 50% 50%

Administrative expenses 70% 30%

Management is considering a plant expansion program that will permit an increase of $1,500,000 in yearly sales. The expansion will increase fixed costs by $200,000, but will not affect the relationship between sales and variable costs.

Required:

1. Determine for 2014 the total fixed costs and the total variable costs.

2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.

3. Compute the break-even sales (units) for 2014.

4. Compute the break-even sales (units) under the proposed program.

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $6,120,000 of income from operations that was earned in 2014.

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?

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

Managerial Accounting

PR21-2A Break-Even Sales Under Present and Proposed Conditions

Battonkill Company, operating at full capacity, sold 112,800 units at a price of $150 per unit during 2014. Its income statement for 2014 is as follows:

Sales 16,920,000

Cost of goods sold 6,000,000

Gross profit 10,920,000

Expenses:

Selling expenses 3,000,000

Administrative expenses 1,800,000

Total expenses 4,800,000

Income from operations 6,120,000

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

Fixed Variable

Cost of goods sold 40% 60%

Selling expenses 50% 50%

Administrative expenses 70% 30%

Management is considering a plant expansion program that will permit an increase of $1,500,000 in yearly sales. The expansion will increase fixed costs by $200,000, but will not affect the relationship between sales and variable costs.

Required:

1. Determine for 2014 the total fixed costs and the total variable costs.

2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.

3. Compute the break-even sales (units) for 2014.

4. Compute the break-even sales (units) under the proposed program.

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $6,120,000 of income from operations that was earned in 2014.

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?

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

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