Question

In: Accounting

Company A is operating at full capacity, sold 45,600 units during the current year. Its income...

Company A is operating at full capacity, sold 45,600 units during the current year. Its income statement is as follows:

Sales		$5,654,400
Cost of goods sold		3,618,816
Gross profit		$2,035,584
Expenses:
Selling expenses	$984,000
Administrative expenses	430,000
Total expenses		1,414,000
Income from operations		$ 621,584

The division of costs between variable and fixed is as follows: (round to nearest dollar)

	Variable	Fixed
Cost of goods sold	70%	30%
Selling expenses	20%	80%
Administrative expenses	10%	90%

Management is planning to increase the unit sales price by $3 each, no change to the variable cost, but adding additional fixed cost of $25,000.

a. Determine the total variable costs and b. the total fixed costs for the current year.
a. Compute the break-even sales units and b. dollar sales for the current year. (round to nearest unit/dollar)
a. Compute the break-even sales units and b. dollar sales under the proposed program for the following year. (round to nearest unit/dollar)
How many units would have to be sold, under the proposed program, to generate income from operations of $965,500 (round to nearest unit).

Expert Solution

1.

The division of costs between variable and fixed is as follows:

	Variable		Fixed
Cost of goods sold	70%	3,618,816 x 70% = 2,533,171	30%	3,618,816 x 30% = 1,085,645
Selling expenses	20%	984,000 x 20% = 196,800	80%	984,000 x 80% = 787,200
Administrative expenses	10%	430,000 x 10% = 43,000	90%	430,000 x 90% = 387,000
Total		$2,772,971		$2,259,845

a) total variable costs = $2,772,971

b) total fixed costs = $2,259,845

2.

Selling price per unit = 5,654,400/45,600

= $124

Variable cost per unit = 2,772,971/45,600

= $61

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 124 - 61

= $63

a) break-even sales units = Fixed costs/Contribution margin per unit

= 2,259,845/63

= 35,971

b) Break even sales (in $) = Break-even sales units x Selling price per unit

= 35,971 x 124

= $4,460,404

3.

Management is planning to increase the unit sales price by $3 each, no change to the variable cost, but adding additional fixed cost of $25,000.

Selling price per unit = $124 + 3

= $127

Variable cost per unit = $61

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 127 - 61

= $66

Fixed costs = 2,259,845 + 25,000

= $2,284,845

a) break-even sales units = Fixed costs/Contribution margin per unit

= 2,284,845/66

= 34,619

b) Break even sales (in $) = Break-even sales units x Selling price per unit

= 34,619 x 127

= $4,396,613

4.

Units to be sold to get the target income = (Fixed costs + Target income)/Contribution margin per unit

= (2,284,845 + 965,500)/66

= 49,248

Note: Exact answers may slightly differ due to rounding off. Feel free to ask in case of any doubt. Thanks

ekkarill92 answered 10 months ago

Darby Company, operating at full capacity, sold 163,500 units at a price of $66 per unit during the current year. Its income statement is as follows

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 163,500 units at a price of $66 per unit during the current year. Its income statement is as follows Sales $10,791,000 Cost of goods sold 3,828,000 Gross profit $6,963,000 Expenses: Selling expenses $1,914,000 Administrative expenses 1,144,000 Total expenses 3,058,000 Income from operations $3,905,000 The division of costs between variable...

Margin of Safety Kearney Company, operating at full capacity, sold 400,000 units at a price of...

Margin of Safety Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 2015. Its income statement for 2015 is as follows: Sales $ 98,640,000 Cost of goods sold (44,500,000) Gross profit $ 54,140,000 Expenses: Selling expenses $8,000,000 Administrative expenses 3,000,000 Total expenses (11,000,000) Income from operations $ 43,140,000 The division of costs between fixed and variable is as follows: Fixed Variable Cost of good sold 28% 72% Selling expenses 25% 75% Administrative...

Darby Company, operating at full capacity, sold 159,800 units at a price of $51 per unit...

Darby Company, operating at full capacity, sold 159,800 units at a price of $51 per unit during the current year. Its income statement is as follows: Sales $8,149,800 Cost of goods sold 2,890,000 Gross profit $5,259,800 Expenses: Selling expenses $1,445,000 Administrative expenses 867,000 Total expenses 2,312,000 Income from operations $2,947,800 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50% Administrative expenses 30% 70% Management is considering...

Hayes Company operated at normal capacity during the current year, producing 54039 units of its single...

Hayes Company operated at normal capacity during the current year, producing 54039 units of its single product. Sales totalled 27015 units at an average price of $21.50 per unit. Variable manufacturing costs were $10.69 per unit, and variable marketing costs were $8.70 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $155315 for manufacturing and $59742 for marketing. What is Hayes break-even point in units for the current year? Select one: a. 19894 b. 73609...

Hayes Company operated at normal capacity during the current year, producing 49034 units of its single...

Hayes Company operated at normal capacity during the current year, producing 49034 units of its single product. Sales totalled 38370 units at an average price of $22.60 per unit. Variable manufacturing costs were $10.00 per unit, and variable marketing costs were $4.72 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $175360 for manufacturing and $78546 for marketing. There were no opening inventories. What is Hayes operating income (loss) under absorption costing? Select one: a....

Hayes Company operated at normal capacity during the current year, producing 53929 units of its single...

Hayes Company operated at normal capacity during the current year, producing 53929 units of its single product. Sales totaled 43419 units at an average price of $23.23 per unit. Variable manufacturing costs were $9.14 per unit, and variable marketing costs were $5.35 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $198830 for manufacturing and $75151 for marketing. If Hayes’s variable manufacturing costs unexpectedly increase by 10%, what is the new unit selling price that...

Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...

Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $188 per unit during the current year. Its income statement is as follows: Sales $188,000,000 Cost of goods sold (98,000,000) Gross profit $90,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 17,800,000 Total expenses (31,800,000) Operating income $58,200,000 The division of costs between variable and...

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 163,500 units...

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 163,500 units at a price of $66 per unit during the current year. Its income statement is as follows Sales $10,791,000 Cost of goods sold 3,828,000 Gross profit $6,963,000 Expenses: Selling expenses $1,914,000 Administrative expenses 1,144,000 Total expenses 3,058,000 Income from operations $3,905,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50%...

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 97,700 units...

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 97,700 units at a price of $93 per unit during the current year. Its income statement is as follows Sales $9,086,100Cost of goods sold 3,224,000Gross profit $5,862,100Expenses: Selling expenses$1,612,000 Administrative expenses961,000 Total expenses 2,573,000Income from operations $3,289,100 The division of costs between variable and fixed is as follows: VariableFixedCost of goods sold60% 40% Selling expenses50% 50% Administrative expenses30% 70% Management is considering a plant expansion program for the following year that will permit an increase of $744,000 in yearly...

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 167,200 units...

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 167,200 units at a price of $111 per unit during the current year. Its income statement is as follows: Sales $18,559,200 Cost of goods sold 6,586,000 Gross profit $11,973,200 Expenses: Selling expenses $3,293,000 Administrative expenses 1,961,000 Total expenses 5,254,000 Income from operations $6,719,200 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50%...