In: Accounting
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 102,600 units at a price of $54 per unit during the current year. Its income statement for the current year is as follows:
Sales | $5,540,400 | ||
Cost of goods sold | 2,736,000 | ||
Gross profit | $2,804,400 | ||
Expenses: | |||
Selling expenses | $1,368,000 | ||
Administrative expenses | 1,368,000 | ||
Total expenses | 2,736,000 | ||
Income from operations | $68,400 |
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.
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.
fill in the blank 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.
fill in the blank units
5. Determine the amount of sales (units) that
would be necessary under the proposed program to realize the
$68,400 of income from operations that was earned in the current
year. Enter the final answers rounded to the nearest whole
number.
fill in the blank units
6. Determine the maximum income from operations
possible with the expanded plant. Enter the final answer rounded to
the nearest dollar.
$ fill in the blank
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.
$ fill in the blank
8. Based on the data given, would you recommend accepting the proposal?
Choose the correct answer.
Each questions are solved below as follows:-
1.2.3.4.5.6.7. 8. Option (b)
In favour of the proposal because of the possibility of increase in net operating income.