Question

I ONLY need answers for 6 and 7! Thank you!

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 89,100 units at a price of $105 per unit during the current year. Its income statement for the current year is as follows:

Sales			$9,355,500
Cost of goods sold			4,620,000
Gross profit			$4,735,500
Expenses:
Selling expenses	$2,310,000
Administrative expenses	2,310,000
Total expenses			4,620,000
Income from operations			$115,500

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 $735,000 in yearly sales. The expansion will increase fixed costs by $73,500, 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 $115,500 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

Answer 1

(6)CALCULATION OF VERIABLECOST PER UNIT & CONTRIBUTION MARGIN

particulars	%	veriable $	fixed $
cost of goods sold	70:30	3234000	1386000
selling expenses	75:25	1732500	577500
administrative expenses	50:50	1155000	1155000
Total		6121500	3118500

veriable cost per unit = 6121500/89100

= 68.70$

contribution margin = selling price - veriable cost

= 105-68.70

= 36.30

CM ratio = CM/SP*100

= 36.30/105*100

= 34.57%

Calculation of maximum profit fom expanstion useing CM ratio

Increase in sales = 735000$

contribution = 735000*34.57%

= 254090$

profit = contribution - fixed cost

= 254090- 73500

= 180590$

(7) statement showing income or loss from operations

particulars	Amount $
sales 89100*105	9355500
additional sales	735000
less: variable cost
COGS	3234000
selling expenses	1732500
administrative expenses	1155000
veriable exp in additional sales	504905
contribution	3464095
Less: fixed Exp
COGS	1386000
selling exp	577500
administrative exp	1155000
additional fixed exp	73500
INCOME FROM OPEREATIONS	272095