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 82,350 units at a price of $63 per unit during the current year. Its income statement for the current year is as follows: Sales Cost of goods sold Gross profit Expenses: $5,188,050 2,562,000 $2,626,050 $1,281,000 Selling expenses Administrative expenses 1,281,000 2,562,000 Total expenses $64,050 Income from operations The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold Selling expenses Administrative expenses Management is considering a plant expansion program that will permit an increase of $441,000 in yearly sales. The expansion will increase fixed costs by $44,100, 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 Total fixed costs 70% 30% 75% 25% 50% 50%

Answer 1

Required: 1 Variable Fixed Cost of goods sold Selling Expenses Administrative Expenses Total 1793400 960750 640500 3394650 768600 320250 640500 1729350 Required: 2 Unit variable cost Total variable cost/units produced Total variable cost units produced Unit variable cost 3394650 82350 41.22 Units contribution margin Selling price Variable cost per unit Selling price Variable cost per unit Unit contribution margin 63.00 41.22 21.78 Required: 3 Break even point(units) Fixed cost/ Contribution margin per unit Fixed cost Contribution margin per unit Break even point (units) 1729350 21.78 79401

Required: 4 Break even point(units) Fixed cost/ Contribution margin per unit 1729350 44100 1773450 21.78 81426 Fixed cost Increased Fixed cost Total New Fixed cost Break even point (units) Required: 5 Determined sales units (New Fixed cost + Desire Income)/Contribution margin New Fixed cost Desired Income Contribution margin per unit Determined Sales units 1773450 64050 21.78 84366

Required: 6 Maximum Income from operation Sales Increased sales Total New sales Variable cost New variable cost Total New variable cost Total New Fixed cost Maximum Income from operation Total New sales Total New variable cost - Total Fixed cost 5188050 441000 5629050 3394650 288556 3683206 1773450 172394 Number of units Increase in sales/ Price per unit New variable cost Number of unitsUnit variable cost Increased sales Price per unit Number of units Unit variable cost New Variable cost 441000 63 7000 41.22 288556

Required: 7 Net Income Sales - Variable cost - New Fixed cost 5188050 3394650 1773450 19950 Less: Variable cost Less: New Fixed cost Net Income Required:8 Option: (b) In favor of the proposal because of the possibility of increasing income from operations