Analysis of an Expansion Proposal
The Enchantment Company is considering an expansion of its present facilities to meet an expected increase demand for its product. The company's current contribution margin ratio is 20 percent. The expanding proposal requires an increase of $50,000 in fixed costs. No changes in unit selling price and unit variable cost are expected for the coming year. The company is now breaking even at $300,000 of sales.
1. Determine the breakeven point after expansion.
2. If the additional facilities are provided, determine the expected profits for sales of $600,000 in the coming year.