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 99,900 units at a price of $93 per unit during the current year. Its income statement for the current year is as follows: $9,290,700 4,588,000 Sales Cost of goods sold Gross profit Expenses: $4,702,700 Selling expenses $2,294,000 Administrative expenses 2,294,000 Total expenses 4,588,000 Income from operations $114,700 The division of costs between fixed and variable is as follows: Variable Fixed 70% 30% Cost of goods sold Selling expenses 75% 25% Administrative expenses 50% 50%

Answer 1

1.

Total variable costs = 4,588,000*70% + 2,294,000*75% + 2,294,000*50%

= $6,079,100

Total Fixed Costs = 4,588,000*30% + 2,294,000*25% + 2,294,000*50%

= $3,096,900

2.Unit variable cost = total variable cost/number of units ‘

= 6,079,100/99,900

= $60.85 per unit

Unit contribution margin = unit selling price – unit variable cost

= $93-$60.85

= $32.15 per unit

3.Break even units = Total Fixed costs/unit contribution margin

= 3,096,900/32.15

= 96,326.59 units

4.Proposed program = (3,096,900+74,400)/32.15

= 98,640.75 units

5.Desired Income = $114,700

+Fixed Costs 3,171,300

Desired Contribution Margin = $3,286,000

Unit contribution Margin = $32.15

Number of units =102,208.40 units

6.Maximum Income:

Maximum Sales = 9,290,700+744,000 = $10,034,700

Contribution Margin = 10,034,700*32.15/93 = $3,468,985

Less: Fixed Costs = $3,171,300

Maximum Income = $297,685

7.Contribution Margin = 9,290,700*32.15/93 = $3,211,785

Less: Fixed Costs = $3171,300

Income = $40,485

8. b In favor of the proposal because of the possibility of increasing income from operations.