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 117,450 units at a price of $93 per unit during the current year. Its income statement for the current year is as follows:

Sales			$10,922,850
Cost of goods sold			5,394,000
Gross profit			$5,528,850
Expenses:
Selling expenses	$2,697,000
Administrative expenses	2,697,000
Total expenses			5,394,000
Income from operations			$134,850

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 $837,000 in yearly sales. The expansion will increase fixed costs by $83,700, 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	$7,147,050
Total fixed costs	$3,640,950

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	$60.85
Unit contribution margin	$32.15

3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number.
113,249 units

4. Compute the break-even sales (units) under the proposed program for the following year. Enter the final answers rounded to the nearest whole number.
115,852 units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $134,850 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number.
___________________ units

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

7. 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.
$ __________

Need help with 5-7

Answer 1

Required: 1 Fixed Variable Cost of goods sold Selling Expenses Administrative Expenses 1618200 3775800 674250 2022750 1348500 1348500 3640950 Total 7147050 Required: 2 Unit variable cost = Total variable cost / units produced Total variable cost 7147050 units produced 117450 60.85 Unit variable cost Units contribution margin = Selling price - Variable cost per unit Selling price Variable cost per unit Unit contribution margin 93.00 60.85 32.15 Required: 3 Break even point(units) = Fixed cost / Contribution margin per unit Fixed cost 3640950 Contribution margin per unit Break even point (units) 32.15 113249

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) 3640950 83700 3724650 32.15 115852 Required: 5 Determined sales units = (New Fixed cost + Desire Income) / Contribution margin %3D New Fixed cost Desired Income Contribution margin per unit Determined Sales units 3724650 134850 32.15 120047

Required: 6 Maximum Income from operation = Total New sales - Total New variable cost - Total Fixed cost Sales 10922850 Increased sales Total New sales Variable cost New variable cost Total New variable cost Total New Fixed cost 837000 11759850 7147050 547667 7694717 3724650 Maximum Income from operation 340483 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 837000 93 9000 Unit variable cost 60.85 New Variable cost 547667

Required: 7 Net Income = Sales - Variable cost - New Fixed cost Sales 10922850 Less: Variable cost 7147050 Less: New Fixed cost 3724650 Net Income 51150