Resolve the following Determine the amount of sales units th

Resolve the following:

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 85,050 units at a price of $78 per unit during the current year. Its income statement for the current year is as follows:

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

Management is considering a plant expansion program that will permit an increase of $546,000 in yearly sales. The expansion will increase fixed costs by $54,600, 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.

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.

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 $81,900 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.
$

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

In favor of the proposal because of the reduction in break-even point.

In favor of the proposal because of the possibility of increasing income from operations.

In favor of the proposal because of the increase in break-even point.

Reject the proposal because if future sales remain at the current level, the income from operations will increase.

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.

Sales			$6,633,900
Cost of goods sold			3,276,000
Gross profit			$3,357,900
Expenses:
Selling expenses	$1,638,000
Administrative expenses	1,638,000
Total expenses			3,276,000
Income from operations			$81,900

Solution

Answers

Total

Total variable cost

Per Unit Variable Cost

Total Fixed Cost

[A]

[B = A x %]

[B/85050 units]

[C = A x %]

Cost of Goods Sold

$          32,76,000.00

$      22,93,200.00

$                 26.96

$      9,82,800.00

Selling Expenses

$          16,38,000.00

$      12,28,500.00

$                 14.44

$      4,09,500.00

Administrative expenses

$          16,38,000.00

$        8,19,000.00

$                    9.63

$      8,19,000.00

TOTAL

$                65,52,000

$            43,40,700

$                       51

$          22,11,300

Requirement 1

Total Variable Costs

$                43,40,700

Total Fixed Costs

$                22,11,300

Requirement 2

Units Variable Cost

$                              51

Unit Sales Price

78

Unit Contribution margin

$                              27

Requirement 3

Total Fixed Cost

$                22,11,300

Unit Contribution margin

$                              27

Break Even Sale [Units]

81900

Requirement 4

Total Fixed Cost

$          22,11,300.00

Increase in Fixed Cost

$                54,600.00

Total Fixed cost next year

$          22,65,900.00

Unit Contribution margin

$                              27

Break Even Sale [Units]

83922

Requirement 5

Target Net Income

$                81,900.00

Total Fixed cost next year

$          22,65,900.00

Total Contribution margin required

$          23,47,800.00

Unit Contribution margin

$                        27.00

Amount of Sale [units] required to earn target net income

86956

Requirement 6

Increase in Sales

$            5,46,000.00

Increase in Contribution margin

$            1,89,000.00

Increase in Fixed Cost

$                54,600.00

Maximum increase in Net Income

$            1,34,400.00

Requirement 7

Sales

$      66,33,900.00

Variable cost:

Cost of Goods Sold

$          22,93,200.00

Selling expenses

$          12,28,500.00

Administrative expenses

$            8,19,000.00

$      43,40,700.00

Contribution margin

$      22,93,200.00

Fixed Cost:

Cost of Goods Sold

$            9,82,800.00

Selling expenses

$            4,09,500.00

Administrative expenses

$           8,19,000.00

Increase in Fixed cost

$                54,600.00

$      22,65,900.00

Net Income

$            27,300.00

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

----In favor of the proposal because of the possibility of increasing income from operations.

	Total	Total variable cost	Per Unit Variable Cost	Total Fixed Cost
	[A]	[B = A x %]	[B/85050 units]	[C = A x %]
Cost of Goods Sold	$          32,76,000.00	$      22,93,200.00	$                 26.96	$      9,82,800.00
Selling Expenses	$          16,38,000.00	$      12,28,500.00	$                 14.44	$      4,09,500.00
Administrative expenses	$          16,38,000.00	$        8,19,000.00	$                    9.63	$      8,19,000.00
TOTAL	$                65,52,000	$            43,40,700	$                       51	$          22,11,300