Question

1. 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 81,000 units at a price of $72 per unit during the current year. Its income statement for the current year is as follows:

   Sales			$5,832,000
   Cost of goods sold			2,880,000
   Gross profit			$2,952,000
   Expenses:
   Selling expenses	$1,440,000
   Administrative expenses	1,440,000
   Total expenses			2,880,000
   Income from operations			$72,000

   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 $432,000 in yearly sales. The expansion will increase fixed costs by $43,200, but will not affect the relationship between sales and Costs that vary in total dollar amount as the level of activity changes.variable costs.

   Required:

   1. Determine the total variable costs and the Costs that tend to remain the same in amount, regardless of variations in the level of activity.total fixed costs for the current year. Enter the final answers rounded to the nearest dollar.

   Total variable costs	$
   Total fixed costs	$

   2. Determine (a) the unit variable cost and (b) the The dollars available from each unit of sales to cover fixed costs and provide operating profits.unit contribution margin for the current year. Enter the final answers rounded to two decimal places.

   Unit variable cost	$
   Unit contribution margin	$

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

   5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $72,000 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.
   $

   • Income
   • Loss

Answer 1

47.11 Answers 1 Determine the Total Variable Cost and the total fixed Costs Total Variable cost 3816000 Total Fixed Cost 1944000 Units Varaible Cost and Unit Contribution Margin Unit Variable Cost Variable Cost/Units) Unit Contribution Margin 24.89 (Sales - Variable Cost)/units 31 Break even sales in units (Fixed cost / CM per unit) 78104 Units 4 Break Even Sales under proposed Program Fixed Cost (1944000+43200) 1987200 Break Even units (Fixedc ost/CM per unit) | 79839 Units 5 Sales units to Sell to get $120,400 income From operations (Fixed cost+ Terget income)/CM per unit 82732 Units 6 Detemine the Maximum Income from operations from the Expanded Plant Maximum sales Revenue 5832000+432000 6264000 Maximum Units Can sold 87000 Fixed Cost (1944000+43200) 1987200 operating Income = Units * CM per unit - Fixed Cost 178230 7 Proposal is Acepted and Sales Remains the Sales Joperating Income = Units * CM per unit - Fixed Cost 28800 income

81000 72 5832000 2880000 2952000 Saels Units Selling price per unit Sales Cost of goods sold Gross Profit Expenses Sellin gexpenses Administraative Expenses total Expenses Income From operations 1440000 1440000 2880000 72000 Division of Fixed and Variable Cost Variable Fixed cost Cost of goods sold 70% 2016000 30% 864000 Sellin gexpenses 75% 1080000 25% 360000 Administraative Expenses 50% 720000 50% 720000 Total 3816000 1944000 Proposed programme Sales Will increase | 432000 fixed cost Increase 43200