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 125,550 units at a price of $135 per unit during the current year. Its income statement for the current year is as follows:

Sales			$16,949,250
Cost of goods sold			8,370,000
Gross profit			$8,579,250
Expenses:
Selling expenses	$4,185,000
Administrative expenses	4,185,000
Total expenses			8,370,000
Income from operations			$209,250

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 $1,350,000 in yearly sales. The expansion will increase fixed costs by $135,000, 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	$ 11,090,250
Total fixed costs	$ 5,649,750

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 $209,250 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.
$

Answer 1

	Total expenes T	Variable % V	Fixed % F	Variable cost C=T*V	Fixed cost T*F	Variable cost per unirt C/125550
Cost of goods sold	8,370,000	70%	30%	5859000	2511000	46.67
Selling expenses	$4,185,000	75%	25%	3138750	1046250	25.00
Administrative expenses	4,185,000	50%	50%	2092500	2092500	16.67
			Total	11090250	5649750	88.33
ans 2
Unit variable cost	$88.33
Unit contribution margin	$46.67
(135-88.33)
ans 3
break even units
Fixed cost/CM per unit	121057
5649750/46.67
ans 4
break even units
(5649750+135000)/46.67	123950
ans 5
Sales required	128434
(5649750+135000+209250+)/46.67
ans 6
Maximum income
Sales (125550+10000)*135	18299250
Less: Variable cost	11973583
(125550+10000)*88.33
Less: fixed cost	5784750
(5649750+135000)
Maximum income	540917
ans 7
Sales 125550*135	16949250
Less: Variable cost	11090250
(125550)*88.33
Less: fixed cost	5784750
(5649750+135000)
Maximum income	74250
If any doubt please comment