Question

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 118,800 units at a price of $117 per unit during the current year. Its income statement for the current year is as follows:

Sales			$13,899,600
Cost of goods sold			6,864,000
Gross profit			$7,035,600
Expenses:
Selling expenses	$3,432,000
Administrative expenses	3,432,000
Total expenses			6,864,000
Income from operations			$171,600

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 $1,287,000 in yearly sales. The expansion will increase fixed costs by $128,700, 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 $171,600 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

PLEASE HELP SOLVE QUESTIONS # 5, 6, 7

Answer 1

Working Note
		Cost-Volum-profit analysis under present conditions
				Amount	Per unit
		Sales		13899600	117
		Cost of goods sold
		Variable	4804800		40.44444444
		Fixed	2059200
		Total	6864000
		Selling expenses
		Variable	2574000		21.66666667
		Fixed	858000
		Total	3432000
		Administrative expenses
		Variable	1716000		14.44444444
		Fixed	1716000
		Total	3432000
		Total variable cost		9094800	76.55555556
		Contribution Margin		4804800	40.44444444
		Total fixed costs		4633200
		Net operating Income		171600
Requirement 5
		Operating Income	171600
		Fixed expenses	4633200
		Additional fixed cost on expansion	128700
		Total contribution required	4933500
		Contribution margin per unit(CM PU)	40.4444444
		Total Sales units = Total contribution/CM per unit	121982
Requirement 6
		Unit sold=Total sales/ Selling price per unit		129800	=(13899600+1287000)/117
				Amount	Per unit
		Sales		15186600	117
		Cost of goods sold
		Variable	5249688.89		40.44444444
		Fixed	2059200
		Total	6864000
		Selling expenses
		Variable	2812333.33		21.66666667
		Fixed	858000
		Total	3432000
		Administrative expenses
		Variable	1874888.89		14.44444444
		Fixed	1716000
		Total	3432000
		Total variable cost		9936911.111	76.55555556
		Contribution Margin		5249688.889	40.44444444
		Fixed costs		4633200
		Additional fixed cost		128700
		Total fixed costs		4761900
		Maximum income possible with expanded plant		487789
Requirement 7
				Amount	Per unit
		Sales		13899600	117
		Cost of goods sold
		Variable	4804800		40.44444444
		Fixed	2059200
		Total	6864000
		Selling expenses
		Variable	2574000		21.66666667
		Fixed	858000
		Total	3432000
		Administrative expenses
		Variable	1716000		14.44444444
		Fixed	1716000
		Total	3432000
		Total variable cost		9094800	76.55555556
		Contribution Margin		4804800	40.44444444
		Fixed cost		4633200
		Additional fixed cost		128700
		Total fixed costs		4761900
		Net operating Income for following year		42900