Question

I HAVE THE ANSWERS FOR 1-4, PLEASE HELP WITH 5-7

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 114,750 units at a price of $135 per unit during the current year. Its income statement for the current year is as follows:

Sales			$15,491,250
Cost of goods sold			7,650,000
Gross profit			$7,841,250
Expenses:
Selling expenses	$3,825,000
Administrative expenses	3,825,000
Total expenses			7,650,000
Income from operations			$191,250

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 $1,215,000 in yearly sales. The expansion will increase fixed costs by $121,500, 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	$

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	$
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 $191,250 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

8. Based on the data given, would you recommend accepting the proposal?

1. In favor of the proposal because of the reduction in break-even point.
2. In favor of the proposal because of the possibility of increasing income from operations.
3. In favor of the proposal because of the increase in break-even point.
4. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
5. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.

Choose the correct answer.
b

Answer 1

5) 117354 units

Solution :

Amount of sales (units) required to get $191250 income = (fixed cost + required income) /contribution margin per unit.

Where, fixed cost under proposed condition = fixed cost for current year + increased fixed cost.

= [($7650000×30%)+($3825000×25%)+($3825000×50%)] + $121500.

= [$2295000 + $956250 + $19125000] + $121500

= $5163750 + $121500

= $5285250

Contribution margin per unit under proposed condition [same as in current year ] =

Selling price per unit - variable cost per unit.

= $135 - [[($7650000×70%)+(3825000×75%)+($3825000×50%)]÷114750]]

= $135 - [[$5355000 + $2865250 + $1912500]/114750]

= $135 - [$10136250]/114750]

=$135 - 88.333

= $46.666...

Therefore,

Sales (units) = [$5285250 + $191250]÷$46.666...

= 117353.57

= 117354 units

6) $489750

statement showing maximum income from operations

	Units	per unit	total
Sales	123750 [refer note 2]	$135	$16706250 [refer note 1]
(-) variable cost [cost of goods sold + selling expenses +administrative expenses ]	123750	$88.333	($10931250) [refer note 3]
Contribution margin			$5775000
(-) fixed cost [cost of goods sold + selling expenses + administrative expenses ]			($5285250)
Income from operations			$489750

Note 1: new sales amount = $15491250+$1215000 = $16706250

Note 2: new units sold = $16706250/$135 = 123750 units

Note 3: new variable cost = 123750 units × $88.3333 = $10931250

7) income from operations = $69750

Statement showing income from operations

Sales		$15491250
(-) variable cost		($10136250)
Contribution margin		$5355000
(-) fixed cost		($5285250)
Income (loss)		$69750