Problem – Break-even sales under present and proposed conditions:
French Broad Inc., operating at full capacity, sold 25,125 units at a price of $75 per unit during 2008. Its income statement for 2008 is as follows:
|
Sales
|
|
$1,884,375
|
|
Cost of goods sold
|
|
1,100,000
|
|
Gross profit
|
|
$784,375
|
|
Expenses:
|
|
|
|
Selling expenses
|
$125,000
|
|
|
Administrative expenses
|
125,000
|
|
|
Total expenses
|
|
$250,000
|
|
Income from operations
|
|
$534,375
|
The division of costs between fixed and variable is as follows:
|
|
Fixed
|
Variable
|
|
Cost of sales
|
40%
|
60%
|
|
Selling expenses
|
50%
|
50%
|
|
Administrative expenses
|
75%
|
25%
|
Management is considering a plant expansion program that will permit an increase of $487,500 in yearly sales. The expansion will increase fixed costs by $135,000, but will not affect the relationship between sales and variable costs.
Required –
1. Determine for 2008 the total fixed costs and total variable costs.
2. Determine for 2008 the unit variable cost and the unit contribution margin.