Question

1. 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 109,350 units at a price of $132 per unit during the current year. Its income statement for the current year is as follows:

   Sales			$14,434,200
   Cost of goods sold			7,128,000
   Gross profit			$7,306,200
   Expenses:
   Selling expenses	$3,564,000
   Administrative expenses	3,564,000
   Total expenses			7,128,000
   Income from operations			$178,200

   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 $1,188,000 in yearly sales. The expansion will increase fixed costs by $118,800, but will not affect the relationship between sales and Costs that vary in total dollar amount as the level of activity changes.variable costs.

   Required:

   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.

   Total variable costs	$
   Total fixed costs	$

   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.

   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 $178,200 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
   • Loss

   8. Based on the data given, would you recommend accepting the proposal?

   1. In favor of the proposal because of the reduction in break-even point.
   2. In favor of the proposal because of the possibility of increasing income from operations.
   3. In favor of the proposal because of the increase in break-even point.
   4. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
   5. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.

   Choose the correct answer.

Answer 1