Question

Battonkill Company, operating at full capacity, sold 112,800 units at a price of $150 per

unit during 2010. Its income statement for 2010 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 sales                                             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. Do you think the income statement presented above helps Battonkill Company to answer the following requirements if no how this income statement shall be presented
2. Compute the break-even sales (units) for 2010.
3. Compute the break-even sales (units) under the (proposed) program.
4. Determine the amount of sales (amount) that would be necessary under the proposed

program to realize the $6,120,000 of income from operations that was earned in 2010.

5. Determine the maximum income from operations possible with the expanded plant.
6. If the proposal is accepted and sales remain at the 2010 level, what will the income?

             or loss from operations is for 2011?

Answer 1

Dear student, we cannot able to post solution more than four subparts of the question as per our policy.

Answer 1
Answer is No. first need to all expense are classified into variable expense and fixed expense
	Total cost	variable (%)	Variable cost
Cost of goods sold	6,000,000	40%	2,400,000
Selling expenses	3,000,000	50%	1,500,000
Administrative expenses	1,800,000	70%	1,260,000
Total Variable Cost			$         5,160,000
	Total cost	Fixed (%)	Variable cost
Cost of goods sold	6,000,000	60%	3,600,000
Selling expenses	3,000,000	50%	1,500,000
Administrative expenses	1,800,000	30%	540,000
Total Fixed Cost			$         5,640,000
Sales Revenue			$      16,920,000
Less: Variable Cost			$         5,160,000
Contribition margin			$      11,760,000
Less: Fixed cost			$         5,640,000
Income from operations			$         6,120,000
Contribition margin ratio (Contribition margin / Sales Revenue)			69.503546%
Answer 2
Contribition margin			11760000
Divided by: Number of units			112,800
Contribition margin per unit			$     104.255319
Fixed cost			$         5,640,000
Divided by: Contribition margin per unit			$     104.255319
Break-even sales (units) for 2010 (Rounded to nearest full unit)			54,098
Answer 3
Fixed cost (5640000+200000)			$         5,840,000
Divided by: Contribition margin per unit			$     104.255319
Break-even sales (units) the (proposed) program (Rounded to nearest full unit)			56,016
Answer 4
Desired Income from operations			$         6,120,000
Add: Revised Fixed cost (5640000+200000)			$         5,840,000
Total contribution required			$      11,960,000
Divided by: Contribition margin ratio			69.503546%
Amount of sales (amount) that would be necessary under the proposed program to realize the $6,120,000 of income from operation			$      17,207,755