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 $72 per unit during the current year. Its income statement for the current year is as follows:

Sales			$5,929,200
Cost of goods sold			2,928,000
Gross profit			$3,001,200
Expenses:
Selling expenses	$1,464,000
Administrative expenses	1,464,000
Total expenses			2,928,000
Income from operations			$73,200

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 $504,000 in yearly sales. The expansion will increase fixed costs by $50,400, 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 $73,200 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

Part B:

Cash Budget

The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

	September		October		November
Sales	$110,000		$140,000		$177,000
Manufacturing costs	46,000		60,000		64,000
Selling and administrative expenses	39,000		42,000		67,000
Capital expenditures	_		_		42,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $10,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of September 1 include cash of $42,000, marketable securities of $59,000, and accounts receivable of $122,400 ($96,000 from July sales and $26,400 from August sales). Sales on account for July and August were $88,000 and $96,000, respectively. Current liabilities as of September 1 include $10,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $17,000 will be made in October. Bridgeport’s regular quarterly dividend of $10,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $41,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
	$	$	$
Total cash receipts	$	$	$
Less estimated cash payments for:
	$	$	$
Other purposes:
Total cash payments	$	$	$
	$	$	$
Cash balance at end of month	$	$	$
Excess or (deficiency)	$	$	$

Answer 1

Post Part B separately.

Req 1.
Allocation of fixed and variable cost:
	Fixed	Variable	Total Cost
Cost of goods sold	2049600	878400	2928000
Selling expense	1098000	366000	1464000
Admin expense	732000	732000	1464000
Total cost	3879600	1976400
Req 2.
Total Variable cost		1976400
Divide: Number of units		82350
Variable cost per unit		24.00
Selling price per unit		72
Contribution margin per unit		48.00
Req 3.
Fixed cost		3879600
Divide: Contribution margin per unit		48
Break even sales units		80825	units
Req 4.
Revised fixed cost (3879600+50400)		3930000
Divide: CM per unit		48
Break even units		102840.24	units
Req 5.
Fixed cost		3930000
Add: target income		73200
Target contribution required		4003200
Divide: Cm per unit		48
target sales units		83400	Units
Req 6.
Increase in sales units (504000/72)			7000
Sales (89350 units @72)		6433200
Less: Variable cost (89350*24)		2144400
Contribution		4288800
Less: Fixed cost		3930000
Net income		358800
Req 7.
when the sales remain at current level, the loss of additional fixed cost of $ 118800 occurs.
Therefore,
Current income from operations		73200
Less: Additional fixed cost		50400
Net income		22800