Question

etermine 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 83,700 units at a price of $63 per unit during the current year. Its income statement for the current year is as follows:

Sales			$5,273,100
Cost of goods sold			2,604,000
Gross profit			$2,669,100
Expenses:
Selling expenses	$1,302,000
Administrative expenses	1,302,000
Total expenses			2,604,000
Income from operations			$65,100

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 $441,000 in yearly sales. The expansion will increase fixed costs by $44,100, but will not affect the relationship between sales and variable costs.

6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.
$

Answer 1

	Addititional units of production due to sales of $ 441,000 = $ 441,000 / $ 63 = 7,000 Units
	Variable Cost of COGS = (70% of $ 2,604,000)	$     18,22,800	"/"by	83,700 units =	21.78
	Variabl Cost of Selling Expenses =	$     13,02,000
	Variabl Cost of Selling Expenses (75% Variable) =	$       9,76,500	"/"by	83,700 units =	11.67
	Variable cost of Administrative Exp (50% of $ 13,02,000) =	$       6,51,000	"/"by	83,700 units =	7.78
	CALCULATION OF THE ADDITINOAL INCOME DUE TO INCREASE IN PLANT CAPACITY
	Sales	$       4,41,000
	Less: Cost of Goods Sold(7000 units X 21.78)	$       1,52,460
	Gross Profit	$       2,88,540
	Less: Variable Cost
	Selling expenses (7,000 units X $ 11.67)	$           81,690
	Administrative Expenses (7,000 units X 7.78)	$           54,460
	Less: Fixed Cost	$           44,100
	Net Revenue	$       1,08,290

Answer = Maximum income from expansion = $ 108,290