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 125,550 units at a price of $69 per unit during the current year. Its income statement for the current year is as follows: $8,662,950 4,278,000 $4,384,950 Sales Cost of goods sold Gross profit Expenses: Selling expenses Administrative expenses $2,139,000 2,139,000 Total expenses 4,278,000 Income from operations $106,950 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 75% 30% 25% Selling expenses Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $690,000 in yearly sales. The expansion will increase fixed costs by $69,000, 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 $ 5,668,350 Total fixed costs $ 2,887,650 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 $ 45.15

Answer 1

ANS :-

Req 1.
Allocation of fixed and variable cost:
						Fixed	Variable
Cost of goods sold						1283400	2994600
Selling expense						534750	1604250
Admin expense						1069500	1069500
Total cost						2887650	5668350
Req 2.
Total Variable cost			5668350
Divide: Number of units			125550
Variable cost per unit			45.15
Selling price per unit			69
Contribution margin per unit			23.85
Req 4.
Revised fixed cost (2887650+69000)							2956650
Divide: CM per unit							23.85
Break even units							123969	units
Req 5.
Fixed cost							2956650
Add: target income							106950
Target contribution required							3063600
Divide: Cm per unit							23.85
target sales units							128453	Units
Req 6.
Increasse in sales units (690000/69)								10000
Sales (135550 units @69)							9352950
Less: Variable cost (135550*45.15)							6120082.5
Contribution							3232867.5
Less: Fixed cost							2956650
net income							276217.5
Req 7.
when the sales remain at current level, the loss of additional fixed cost of $ 69000 occurs.
Therefore,
Current income from operations							106950
Less: Additional fixed cost							69000
Net income							37950

Req 8 ;

Option b

In favour of the proposal because of the possibility of increasing income from operations.