Question
In: Accounting
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 157,800 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 157,800 units at a price of $78 per unit during the current year. Its income statement is as follows:
| Sales | $12,308,400 | ||
| Cost of goods sold | 4,368,000 | ||
| Gross profit | $7,940,400 | ||
| Expenses: | |||
| Selling expenses | $2,184,000 | ||
| Administrative expenses | 1,300,000 | ||
| Total expenses | 3,484,000 | ||
| Income from operations | $4,456,400 |
The division of costs between variable and fixed is as follows:
| Variable | Fixed | |||
| Cost of goods sold | 60% | 40% | ||
| Selling expenses | 50% | 50% | ||
| Administrative expenses | 30% | 70% | ||
Management is considering a plant expansion program for the following year that will permit an increase of $1,014,000 in yearly sales. The expansion will increase fixed costs by $135,200, 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.
| Total variable costs | $ |
| Total fixed costs | $ |
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
| Unit variable cost | $ |
| Unit contribution margin | $ |
3. Compute the break-even sales (units) for the
current year.
units
4. Compute the break-even sales (units) under
the proposed program for the following year.
units
5. Determine the amount of sales (units) that
would be necessary under the proposed program to realize the
$4,456,400 of income from operations that was earned in the current
year.
units
6. Determine the maximum income from operations
possible with the expanded plant.
$
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?
$
8. Based on the data given, would you recommend accepting the proposal?
- In favor of the proposal because of the reduction in break-even point.
- In favor of the proposal because of the possibility of increasing income from operations.
- In favor of the proposal because of the increase in break-even point.
- Reject the proposal because if future sales remain at the current level, the income from operations will increase.
- Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 163,500 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 163,500 units at
a price of $66 per unit during the current year. Its income
statement is as follows
Sales
$10,791,000
Cost of goods sold
3,828,000
Gross profit
$6,963,000
Expenses:
Selling expenses
$1,914,000
Administrative
expenses
1,144,000
Total expenses
3,058,000
Income from operations
$3,905,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 97,700 units...
Break-Even Sales Under Present and Proposed
Conditions
Darby Company, operating at full capacity, sold 97,700 units at a
price of $93 per unit during the current year. Its income statement
is as follows
Sales $9,086,100Cost of goods
sold 3,224,000Gross
profit $5,862,100Expenses: Selling
expenses$1,612,000 Administrative
expenses961,000 Total
expenses 2,573,000Income from
operations $3,289,100
The division of costs between variable and fixed is as
follows:
VariableFixedCost of goods
sold60% 40% Selling
expenses50% 50% Administrative
expenses30% 70%
Management is considering a plant expansion program for the
following year that will permit an increase of $744,000 in yearly...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 167,200 units...
Break-Even Sales Under Present and Proposed Conditions Darby
Company, operating at full capacity, sold 167,200 units at a price
of $111 per unit during the current year. Its income statement is
as follows: Sales $18,559,200 Cost of goods sold 6,586,000 Gross
profit $11,973,200 Expenses: Selling expenses $3,293,000
Administrative expenses 1,961,000 Total expenses 5,254,000 Income
from operations $6,719,200 The division of costs between variable
and fixed is as follows: Variable Fixed Cost of goods sold 60% 40%
Selling expenses 50% 50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 139,000 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 139,000 units at
a price of $72 per unit during the current year. Its income
statement is as follows:
Sales
$10,008,000
Cost of goods sold
3,552,000
Gross profit
$6,456,000
Expenses:
Selling expenses
$1,776,000
Administrative expenses
1,056,000
Total expenses
2,832,000
Income from operations
$3,624,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 167,200 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 167,200 units at
a price of $129 per unit during the current year. Its income
statement is as follows:
Sales
$21,568,800
Cost of goods sold
7,654,000
Gross profit
$13,914,800
Expenses:
Selling expenses
$3,827,000
Administrative expenses
2,279,000
Total expenses
6,106,000
Income from operations
$7,808,800
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 120,200 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 120,200 units at
a price of $132 per unit during the current year. Its income
statement is as follows:
Sales
$15,866,400
Cost of goods sold
5,632,000
Gross profit
$10,234,400
Expenses:
Selling expenses
$2,816,000
Administrative expenses
1,672,000
Total expenses
4,488,000
Income from operations
$5,746,400
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 122,850 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 122,850 units at
a price of $108 per unit during the current year. Its income
statement for the current year is as follows:
Sales
$13,267,800
Cost of goods sold
6,552,000
Gross profit
$6,715,800
Expenses:
Selling expenses
$3,276,000
Administrative expenses
3,276,000
Total expenses
6,552,000
Income from operations
$163,800
The division of costs between fixed and variable is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 148,400 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 148,400 units at
a price of $87 per unit during the current year. Its income
statement is as follows
Sales
$12,910,800
Cost of goods sold
4,582,000
Gross profit
$8,328,800
Expenses:
Selling expenses
$2,291,000
Administrative expenses
1,363,000
Total expenses
3,654,000
Income from operations
$4,674,800
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 99,700 units...
Break-Even Sales Under
Present and Proposed Conditions
Darby Company,
operating at full capacity, sold 99,700 units at a price of $78 per
unit during the current year. Its income statement is as
follows:
Sales
$7,776,600
Cost of goods sold
2,756,000
Gross profit
$5,020,600
Expenses:
Selling expenses
$1,378,000
Administrative
expenses
832,000
Total expenses
2,210,000
Income from operations
$2,810,600
The division of costs
between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 87,750 units...
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 87,750 units at
a price of $99 per unit during the current year. Its income
statement for the current year is as follows:
Sales $8,687,250
Cost of goods sold 4,290,000
Gross profit $4,397,250
Expenses:
Selling expenses $2,145,000
Administrative expenses 2,145,000
Total expenses 4,290,000
Income from operations $107,250
The division of costs between fixed and variable is as
follows:
Variable Fixed
Cost of goods sold 70% ...
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