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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 $129 per unit during the current year. Its income statement for the current year is as follows:

Sales			$11,842,200
Cost of goods sold			5,848,000
Gross profit			$5,994,200
Expenses:
Selling expenses	$2,924,000
Administrative expenses	2,924,000
Total expenses			5,848,000
Income from operations			$146,200

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 $903,000 in yearly sales. The expansion will increase fixed costs by $90,300, 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 $146,200 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

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

I ONLY NEED THE ANSWER TO #6

Answer 1

• Requirement asked specifically: Requirement #6
• Step 1: Figure out the amount of current Fixed and Variable cost

	Total cost	Variable Cost	Fixed Cost
Cost of Goods Sold	$5,848,000	$4,093,600	$1,754,400
Selling Expenses	$2,924,000	$2,193,000	$731,000
Administrative expenses	$2,924,000	$1,462,000	$1,462,000
	$11,696,000	$7,748,600	$3,947,400

• Step 2: Calculate total unit sales after expansion

A	Increase in Sales	$903,000
B	Sale price per unit	$129
C = A/B	Increase in unit sales	7,000
D	Existing current sales	91,800
E = C+D	Units sold after expansion	98,800

• Step 3: ANSWER – Calculate Income from Operations

A = 98800 units x $ 129	Total Sales after expansion	$12,745,200
B = ($7748600/91800 units) x 98800 units	Total Variable Cost	$8,339,452
C = A - B	Contribution margin	$4,405,748
D = 3947400 + 90300	Total Fixed Cost	$4,037,700
E = C - D	Maximum Income from Operations	$368,048 = Answer