ABC, Inc includes the following data for 2010:
Sales (80,000 units) $ 5,660,000
Cost of goods sold 2,100,000
Gross Profit 3,560,000
Selling expenses 1,500,000
Administrative expenses 900,000
Income from Operations 1,160,000
Cost of goods sold is comprised equally between fixed and variable costs.
Fixed costs account for 30% of selling expenses
Variable costs account for 40% of administrative expenses.
A new product is being considered for production that could increase 2010 sales by $884,375.
This new product would increase fixed costs by $265,000, but will not affect the relationship between sales and variable costs.
1. Compute the 2010 (a) total fixed costs and the (b) total variable costs.
2. Compute the 2010 (a) unit variable cost and the (b) unit contribution margin.
3. Compute the break-even unit sales for 2010.
4. Compute the break-even unit sales considering the proposed new product.
5. Determine the amount of unit sales that would be necessary considering the proposed new product to realize the same amount of income from operations that was earned in 2010.
6. Determine the maximum income from operations possible w/ the expanded product line.
7. If the proposal is accepted and sales remain the at 2010 level, what will the income or loss from operations be for 2011?
8. Based on your computations, would you recommend accepting the proposal? Explain your answer