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 120,150 units at a price of $117 per unit during the current year. Its income statement for the current year is as follows:
Sales | $14,057,550 | ||
Cost of goods sold | 6,942,000 | ||
Gross profit | $7,115,550 | ||
Expenses: | |||
Selling expenses | $3,471,000 | ||
Administrative expenses | 3,471,000 | ||
Total expenses | 6,942,000 | ||
Income from operations | $173,550 |
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
$173,550 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.
As per policy only first four questions will be answered
1. Total variable costs and total fixed costs
Variable costs | ||
Cost of goods sold | 4859400 | (6942000*70%) |
Selling expenses | 2603250 | (3471000*75%) |
Administrative expenses | 1735500 | (3471000*50%) |
Total variable costs | 9198150 |
Fixed costs | ||
Cost of goods sold | 2082600 | (6942000*30%) |
Selling expenses | 867750 | (3471000*25%) |
Administrative expenses | 1735500 | (3471000*50%) |
Total fixed costs | 4685850 |
Total variable costs | 9198150 |
Total fixed costs | 4685850 |
2. Unit variable cost and unit contribution margin
Unit variable cost | 76.56 | total variable costs /total units sold =(9198150/120150) |
Unit contribution margin | 40.44 | Sales - variable costs =117-76.56 = |
3. break-even sales (units) for the current year = fixed costs / unit contribution margin =4685850/40.44 = 115872
4. break-even sales (units) under the proposed program for the following year = fixed costs / unit contribution margin = (4685850+128700)/40.44 = 119054
Get Answers For Free
Most questions answered within 1 hours.