Maxwell Industries Inc., operating at full capacity, sold 22,350 units at a price of $150 per unit during 2010. Its

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Maxwell Industries Inc., operating at full capacity, sold 22,350 units at a price of $150 per unit during 2010. Its income statement for 2010 is as follows:

 

Sales ---------------------------------------------------------- $3,352,500

Cost of Goods Sold -------------------------------------    2,200,000

Gross Profit                                                  $1,152,500

Expenses:

      Selling Expenses    ----------250,000

      Administrative Expenses--- 250,000           

          Total Expenses                                       500,000

Income from Operations                                  $652,500

 

                                                 Fixed               Variable

Cost of Sales                              60%                   40%

Selling Expenses                        50%                   50%

Administrative Expenses             55%                   45%

 

Management is considering a plant expansion program that will permit an increase of $900,000 in yearly sales. The expansion will increase fixed costs by $242,500, but will not affect the relationship between sales and variable costs.

 

 

Required

 

1.  Determine for 2010 the total fixed costs and the total variable costs.

 

2.  Determine for 2010 (a) the unit variable cost and (b) the unit contribution margin.

 

3.  Compute the break-even sales (units) for 2010 

 

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 $652,500 of income from operations that was earned in 2010

 

6.  Determine the maximum income from operations possible with the expanded plan 

 

7.  If the proposal is accepted and sales remain at the 2010 level, what will the income or loss from operations is for 2011? 

 

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

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