Question

Determine the amount of sales. (Units) that would be necessary under the break even sales under present and proposed conditions.

Darby company, operating at full capacity, sold 109,350 units at a price of $69 per unit during the current year. It’s income statement for the current year is as follows:

Sales. $7,545,150

Cost of goods sold. 3,819,150

Gross profit. $3,819,150

Expenses:

Selling expense. $1,863,000

Administrative expense. 1,863,000

Total expense. 3,726,00

Income from operations. $93,150

The division of cost between fixed and vaieable is as follows:

Variable. Fixed

Cost of goods sold. 70%. 30%

Selling expense. 75%. 25%

Administrative expense. 50%. 50%

Management is considering a plant expansion program that will permit an increase of $621,000 in yearly sales. The expansion will increase fixed cost by $62,100, but will not affect the relationship between sales and variable cost.

Required:

1. Determine the total variable cost and the fixed ost.for the current year. Enter the finale answers rounded to. The nearest dollar.

Total variable cost $

Total fixed cost $

2.determine (a) the unit variable cost and (b) the unit contribution margin for the current year.enter the finale answer rounded to two decimal places.

Unit variable cost $

Unit contribution margin $

3. Compute the break-even sales (units) for the current year. Enter the finale answers rounded to the nearest whole number.

4. Compute the break-energy sales ((units) under the proposed program for the following year. Enter the finale answer rounded to the nearest whole number

5.determine the amount of sales (units) that would be necessary under the proposed program to realize the $93,150 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole numbe.

6. Determine the maxi um income from operations possible with the expanded plant. Enter the finale answer rounded to the nearest dollar.

7. If the proposed 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.

8. Based on the data given, would you maintain the current income from operations would be below the current years sale.

Answer 1

1)

	Variable cost	Fixed cost
cost of goods sold	2673405       [3819150*.70]	1145745
selling expense	1397250       [1863000*.75]	465750
Administrative expense	931500         [1863000*.50]	931500
Total	5002155	2542995

2)

Unit variable cost = Total variable cost / Number of units

                = 5002155/109350

                 = $ 45.74 per unit

Contribution margin = price - variable cost

            = 69-45.74

            = $ 23.26 per unit

3)Break even point (units)=Fixed cost / unit contribution margin

            = 2542995 / 23.26

            = 109330 units

4)new fixed cost= 2542995 + 62100 = 2605095

BEP(unit) = 2605095/23.26

              = 111999 units