Question

determine the amount of sale units that wpuld be necessary under break-even sales present and proposed conditons . stuck on questions 5-7

eBook Show Me How Calculator Print Item 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 70,200 units at a price of $75 per unit during the current year. Its income statement for the current year is as follows: Sales $5,265,000 2,600,000 $2,665,000 Cost of goods sold Gross profit Expenses: Selling expenses $1,300,000 Administrative expenses 1,300,000 Total expenses Income from operations 2,600,000 $65,000 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative 50% 50% expenses Management is considering a plant expansion program that will permit an increase $450,000 in yearly sales. The expansion will increase fixed costs by $45,000, 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 3,445,000 Total fixed costs 1,755,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Enter the final anders rounded to two decimal places. Check My Work Previous Email Instructor Save and Exit Submit Assignment for Grading

Answer 1

5. Amount of sales-to realize income from operations of $ 65,000 :
Total revised fixed cost:
a) Current fixed cost		$ 1,755,000
b) Increase in fixed cost		$ 45,000
Total revised fixed cost	[a+b]	$ 1,800,000
Desired Income		$ 65,000
Desired Contribution		$ 1,865,000
Since the relationship between sales and variable cost will not affected by proposed plan, the Profit volume Ratio will remain same as of current level. Profit Volume Ratio = Contribution / Sales * 100                                      = (70,200 units * 25.93) / 5,265,000 *100                                      = 34.573 % Hence the sales to earn $65,000 of income from operation is = Desired Contribution / Profit volume Ratio                                                                        = $ 1865000/34.573%                                                                 = $ 5,394,382.90 Sales in units to earn $65,000 of income from operation is     = $ 5,394, 382.90 / $ 75 per unit                                                                   = 71,925 units

6. Maximum income from operation possible with expanded plant:
Increase Sales		$ 450,000
Sale price		$ 75
Increase in sales units	[450,000/75]	6,000 units
Revised sales units	[70,200+6,000]	76,200 units
Revised sales	[76,200*75]	$ 5,715,000
Revised variable cost	[76,200*49.07]	$ 3,739,134
Revised Contribution		$ 1,975,866
Revised Fixed cost	[1,755,000+45,000]	$ 1,800,000
Revised income from operation		$ 175,866
Hence the Maximum income from operation possible with expanded plant is $ 175,866.

7. Income if proposal accepted and sales remain at current level:
Sales units		70,200 units
Sales	[70,200*75]	$ 5,265,000
Variable cost	[70,200*49.07]	$ 3,445,000
Contribution		$ 1,820,000
Revised Fixed cost	[1,755,000+45,000]	$ 1,800,000
Revised income from operation		$ 20,000
Hence income if proposal accepted and sales remain at current level is $ 20,000.