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 108,000 units at a price of $120 per unit during the current year. Its income statement for the current year is as follows: Sales $12,960,000 Cost of goods sold 6,400,000 Gross profit $6,560,000 Expenses: Selling expenses $3,200,000 Administrative expenses 3,200,000 Total expenses 6,400,000 Income from operations $160,000 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 $1,200,000 in yearly sales. The expansion will increase fixed costs by $120,000, 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 $160,000 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.
1)
| Pariculars | % Fixed cost to total cost (A) | % Variable cost to total cost (B) | Total cost ($) | Variable cost (Total cost * (B) | Fixed cost (Total cost * (A) |
| Cost of goods sold | 30% | 70% | 64,00,000 | 44,80,000.00 | 19,20,000.00 |
| Selling expenses | 25% | 75% | 32,00,000 | 24,00,000.00 | 8,00,000.00 |
| Administration expenses | 50% | 50% | 32,00,000 | 16,00,000.00 | 16,00,000.00 |
| Total | 84,80,000 | 43,20,000 |
2) Total variable cost incurred in current year =$8480,000
Total Number of units produced in the current year =108,000 units
Variable cost per unit = (Total variable cost incurred in current year/Total Number of units produced in the current year)
=8480,000/108,000
=$78.5/unit (rounded figure)
Contribution margin per unit= selling price per unit- variable cost per unit
=120-78.5
=$41.5 per unit (rounded figure)
3)
Break even sales (units)= Fixed cost/Contribution per unit
Fixed cost =$4320,000
Conribution per unit=$41.5/unit
Break even sales (units)= 4320,000/41.5
=104,096 units
4) Proposed year additional fixed cost=120,000
exsisting fixed cost in previous year =4320,000
Total fixed costs=$4,440,000
Total value of sales= 1,29,60,000+1200,000
=$14,160,000
% variable cost to sales in previous year =(84,80,000/1,29,60,000)*100
=65.432%
Variable cost in following year =0.65432*14,160,000
=9,265,171
Conribution per unit=$41.5/unit
Selling price per unit did not changed so contribution per unit also remained in same as previous year
Break even sales (units)= Fixed cost/Contribution per unit
=4,440,000/41.5
=106,988 Units
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