Question

4.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 101,250 units at a price of $54 per unit during the current year. Its income statement for the current year is as follows: Sales $5,467,500 Cost of goods sold 2,700,000 Gross profit $2,767,500 Expenses: Selling expenses $1,350,000 Administrative expenses 1,350,000 Total expenses 2,700,000 Income from operations $67,500 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 $486,000 in yearly sales. The expansion will increase fixed costs by $48,600, but will not affect the relationship between sales and variable costs.

1. Determine the total variable costs and the Costs that tend to remain the same in amount, regardless of variations in the level of activity.total fixed costs for the current year. Enter the final answers rounded to the nearest dollar.

2. Determine (a) the unit variable cost and (b) the The dollars available from each unit of sales to cover fixed costs and provide operating profits.unit contribution margin for the current year. Enter the final answers rounded to two decimal places.

3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number.

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

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $67,500 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number.

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.

Answer 1

1)

Expense Type	Total Expenses	Variable expense	Fixed Expense
Cost of Goods Sold	2,700,000.00	1,890,000.00	$810,000.00
Selling Expense	1,350,000.00	1,012,500.00	$337,500.00
Adminstrative Expense	1,350,000.00	675,000.00	$675,000.00
Total	5,400,000.00	3,577,500.00	1,822,500.00

2) Unit Variable Cost = 3,577,500/ 101,250

=35.33

Unit contribution Margin = 54 - 35.33 =18.67

3)Break even sales in units = 1,822,500/35.33

=51,580 Units

4)break-even sales (units) under the proposed program = (1,822,500 + 48,600)/35.33

=52,956 Units

5)To Earn target income = (1,822,500 + 48,600 + 67,500)/35.33

=54,866 Units

6)

Sales	$ 5,953,500.00
Variable Expense	$ 3,895,500.00
Contribution Margin	$ 2,058,000.00
Fixed Cost	$ 1,871,100.00
Operating Income	$      186,900.00

7)

Sales	$ 5,467,500.00
Variable Expense	$ 3,577,500.00
Contribution Margin	$ 1,890,000.00
Fixed Cost	$ 1,871,100.00
Operating Income	$        18,900.00