Question

Hello Everyone! I've done most of this problem but I am having a hard time with numbers 6 and 7. I would love some help and if you could explain how you got the answer or just show your work so I could understand, it would be really appreciated. Thank you

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 118,800 units at a price of $135 per unit during the current year. Its income statement for the current year is as follows: Sales $16,038,000 Cost of goods sold 7,920,000 Gross profit $8,118,000 Expenses: Selling expenses $3,960,000 Administrative expenses 3,960,000 Total expenses 7,920,000 Income from operations $198,000 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 30% 70% 75% Selling expenses 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $1,485,000 in yearly sales. The expansion will increase fixed costs by $148,500, 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 $ $ 10,494,000 5,346,000 Total fixed costs

Answer 1

Determine the maximum income from operations possible with expanded plant as follows: Compute number of sales (in units) increased due to expansion: Sales (in units) = Yearly sales increase Selling price per unit $1485000 $135 =11,000 units Maximum income from operations possible with expanded plan: = [(11,000 + 118,800) units Contribution margin] - [Fixed cost + Increased fixed cost] = [129,800 units x $46.67] - [$5,346,000+ $148,500] = $6,057,766 - $5.494,500 = $563,266 Income in the following year = Income from operation - Increased fixed cost = $198.000 - $148,500 = $49,500