Chapter 21 Accounting

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Ballywide Company, operating at full capacity, sold 92,240 units at a price of $140 per unit during 2013. Its income

statement for 2013 is as follows:

Sales

12,913,600

Cost of goods sold

5,000,000

Gross profit

7,913,600

Expenses:

Selling expenses

2,800,000

Administrative expenses

1,720,000

Total expenses

4,520,000

Income from operations

3,393,600

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

Fixed

Variable

Cost of Sales

45%

55%

Selling expense

55%

45%

Administrative expense

65%

35%

a. Determine for 2013 the total fixed costs and the total variable costs.

b. Determine for 2013 (1) the unit variable cost and (2) the unit contribution margin.

c. Compute the break‐even sales in units for 2013.

d. Compute the break‐even sales in units under the proposed program.

f. Determine the maximum income from operations possible with the expanded plant.

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

e. Determine the amount of sales in units that would be necessary under the proposed program to realize the

$3,393,600 of income from operations that was earned in 2013.

g. If the proposal is accepted and sales remain at the 2013 level, what will the income or loss from operations be for

2014?

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