Question

Determine the amount of sales (units) that would be necessary under

Break-Even Sales Under Present and Proposed Conditions

Darby Company, operating at full capacity, sold 121,500 units at a price of $108 per unit during the current year. Its income statement for the current year is as follows:

Sales			$13,122,000
Cost of goods sold			6,480,000
Gross profit			$6,642,000
Expenses:
Selling expenses	$3,240,000
Administrative expenses	3,240,000
Total expenses			6,480,000
Income from operations			$162,000

The division of costs between fixed and variable 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 that will permit an increase of $1,188,000 in yearly sales. The expansion will increase fixed costs by $118,800, but will not affect the relationship between sales and variable costs.

Required:

1. Determine the total variable costs and the total fixed costs for the current year. Enter the final answers rounded to the nearest dollar.

Total variable costs	$
Total fixed costs	$

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Enter the final answers rounded to two decimal places.

Unit variable cost	$
Unit contribution margin	$

3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number.
units

4. Compute the break-even sales (units) under the proposed program for the following year. Enter the final answers rounded to the nearest whole number.
units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $162,000 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number.
units

6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.
$

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? Enter the final answer rounded to the nearest dollar.
$ Income

Answer 1

B25 23 3 break even point (units 117,161 units 26 27 28 29 30 31 32 current roposed S108.00 108.00 70.67 70.67 37.33 37.33 $ 121,500 132,500 $ 4,536,000 4,946,667 $ 4,374,000 4,492,800 $ 162,000 453,867 sales per unit - variable cost per unit contribution per unit sales units total contribution - fixed cost - income from operations 34 35 break even point (units 120,343 units 37 5 necessary sales (units 124,682 units 39 40 6 maximum possible income from operations 453,867 $37.33 S 121,500 $ 4,536,000 $ 4,492,800 $ 43,200 7 contribution per unit sales units total contribution - fixed cost net income (loss) from operations 43 45 46 47 48 49 net income from operations $ 43,200

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