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 91,800 units at a price of $126 per unit during the current year. Its income statement for the current year is as follows: Sales $11,566,800 Cost of goods sold 5,712,000 Gross profit $5,854,800 Expenses: Selling expenses $2,856,000 Administrative expenses 2,856,000 Total expenses 5,712,000 Income from operations $142,800 The division of costs between fixed and variable is as follows: Variable Fixed 70% 30% Cost of goods sold Selling expenses Administrative 75% 25% 50% 50% expenses Management is considering a plant expansion program that will permit an increase of $1,008,000 in yearly sales. The expansion will increase fixed costs by $100,800, 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 7,568,400 Total fixed costs 3,855,600 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 82.44 ✓ Unit contribution margin 43.56 3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number. 88,512 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. 90,826 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $142,800 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. 390,444 X units 6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar. $ 390,444 x

Answer 1

91800 126 11566800 5712000 5854800 Sales Units Selling price per unit Sales Cost of goods sold Gross Profit Expenses Selling expenses Administrative Expenses total Expenses Income From operations 2856000 2856000 5712000 142800 Cost of goods sold Selling expenses Administrative Expenses Total Division of Fixed and Variable Cost Variable 70% 3998400 75% 2142000 50% 1428000 7568400 Proposed programmed 1008000 fixed cost Increase Fixed cost 30% 25% 50% 1713600 714000 1428000 3855600 Sales Will increase 100800

7568400 3855600 82.44 43.56 3 88512 Units 1 Determine the Total Variable Cost and the total fixed Costs Total Variable cost Total Fixed Cost 2 Units Variable Cost and Unit Contribution Margin Unit Variable Cost (Variable Cost/Units) 7568400 / 91800 Unit Contribution Margin ( Selling Price -VC) 126 - 82 3 Break even sales in units (Fixed cost / CM per unit) 3855600 / 43.56 4 Break Even Sales under proposed Program Fixed Cost 3855600 + 100800 Break Even units (Fixed cost / CM per unit) 3956400 / 43.56 5 Sales units to Sell to get $142800 income From operations (Fixed cost+ Target income)/ CM per unit = (3956400+142800)/43.56 6 Determine the Maximum Income from operations from the Expanded Plant Maximum sales Revenue 11566800 + 1008000 Maximum Units Can sold 12574800 / 126 Fixed Cost operating Income = Units * CM per unit -Fixed Cost =(99800*43.56)-3956400 3956400 90826 94105 Units 12574800 99800 3956400 390888 Answer