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 114,750 units at a price of $135 per unit during the current year. Its income statement for the current year is as follows:

Sales			$15,491,250
Cost of goods sold			7,650,000
Gross profit			$7,841,250
Expenses:
Selling expenses	$3,825,000
Administrative expenses	3,825,000
Total expenses			7,650,000
Income from operations			$191,250

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 $1,350,000 in yearly sales. The expansion will increase fixed costs by $135,000, but will not affect the relationship between sales and variable costs.

1. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $191,250 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. _____ units

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

3. 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. $______

Answer 1

Required: 1 Determined sales units = (New Fixed cost + Desire Income) / Contribution margin New Fixed cost Desired Income Contribution margin per unit Determined Sales units 5298750 191250 46.67 117634 Required: 2 Maximum Income from operation = Total New sales - Total New variable cost - Total Fixed cost Sales 15491250 Increased sales 1350000 Total New sales 16841250 Variable cost 10136250 New variable cost 883333 Total New variable cost 11019583 Total New Fixed cost 5298750 Maximum Income from operation 522917

Number of units = Increase in sales / Price per unit New variable cost = Number of units * Unit variable cost Increased sales Price per unit Number of units Unit variable cost New Variable cost 1350000 135 10000 88.33 883333 Required: 3 Net Income = Sales - Variable cost-New Fixed cost Sales Less: Variable cost Less: New Fixed cost Net Income 15491250 10136250 5298750 56250