Question

4

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 72,900 units at a price of $114 per unit during the current year. Its income statement for the current year is as follows: Sales $8,310,600 4,104,000 Cost of goods sold Gross profit $4,206,600 Expenses: Selling expenses $2,052,000 2,052,000 Administrative expenses Total expenses Income from operations 4,104,000 $102,600 The division of costs between fixed and variable is as follows: Fixed Cost of goods sold Variable 70% 75% 30% Selling expenses 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $684,000 in yearly sales. The expansion will increase fixed costs by $68,400, but will not affect the relationship between sales and variable costs.

Answer 1

Required: 1 Cost of goods sold Selling Expenses Administrative Expenses Fixed | 1231200 513000 1026000 2770200 Variable 2872800 1539000 1026000 5437800 Total Required: 2 Unit variable cost = Total variable cost/ units produced Total variable cost units produced Unit variable cost 5437800 72900 74.59 Units contribution margin = Selling price - Variable cost per unit Selling price Variable cost per unit Unit contribution margin 114.00 74.59 39.41 Required: 3 Break even point(units) = Fixed cost / Contribution margin per unit Fixed cost Contribution margin per unit Break even point (units) 27702001 39.41 70292

Required: 4 Break even point(units) = Fixed cost / Contribution margin per unit Fixed cost Increased Fixed cost Total New Fixed cost Contribution margin per unit Break even point (units) 2770200 68400 2838600 39.41 72027 Required: 5 Determined sales units = (New Fixed cost + Desire Income) / Contribution margin New Fixed cost 2838600 Desired Income 102600 Contribution margin per unit 39.41 Determined Sales units 74631

Required: 6 Maximum Income from operation = Total New sales - Total New variable cost - Total Fixed cost Sales 8310600 Increased sales 684000 Total New sales 8994600 Variable cost 5437800 New variable cost 447556 Total New variable cost 5885356 Total New Fixed cost 2838600 Maximum Income from operation 270644 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 684000 114 6000 74.59 447556

Required: 7 Net Income = Sales - Variable cost-New Fixed cost Sales Less: Variable cost Less: New Fixed cost Net Income 8310600 5437800 2838600 34200