Part 1 (50 Points)
Miami Corporation was operating at full capacity; they sold 500,000 units at $94 each during
the current year. Their income statement is as follows:
Sales $47,000,000
Cost of Goods Sold $25,000,000
Gross Profit $22,000,000
Selling Expenses $4,000,000
Admin Expenses $3,000,000
Total Expenses $7,000,000
Income from Operations $15,000,000
The division of costs between variable and fixed is as follows:
Variable Fixed
Cost of goods sold 70% 30%
Selling expenses 75% 25%
Administrative expenses 50% 50%
Management is considering a plant expansion program for the following year that will permit
an increase of $3,760,000 in yearly sales. The expansion will increase fixed costs by $1,800,000
but will not affect the relationship between sales and variable costs.
Instructions
Determine the amount of sales (units) that would be necessary under the proposed
program to realize the $15,000,000 of income from operations that was earned in the
current year.
6. Determine the maximum income from operations possible with the expanded plant.
7. If the proposal is accepted and sales remain at the current level, what will the income or
loss from operations be for the following year?
Part 2 (50 Points)
Based on the data given in the previous problem, would you recommend accepting the
proposal? Explain…and please write as if someone important is reading it (grammar, etc.)