Determine the amount of sales (units) that would be necessaryunder
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 86,400 units ata price of $51 per unit during the current year. Its incomestatement for the current year is as follows:
| Sales | | | $4,406,400 |
| Cost of goods sold | | | 2,176,000 |
| Gross profit | | | $2,230,400 |
| Expenses: | | | |
| Selling expenses | $1,088,000 | | |
| Administrative expenses | 1,088,000 | | |
| Total expenses | | | 2,176,000 |
| Income from operations | | | $54,400 |
The division of costs between fixed and variable is asfollows:
| Variable | Fixed |
| Cost of goods sold | 70% | | 30% | |
| Selling expenses | 75% | | 25% | |
| Administrative expenses | 50% | | 50% | |
Management is considering a plant expansion program that willpermit an increase of $357,000 in yearly sales. The expansion willincrease fixed costs by $35,700, but will not affect therelationship between sales and variable costs.
Required:
1. Determine the total variable costs and thetotal fixed costs for the current year. Enter the final answersrounded 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 finalanswers rounded to two decimal places.
| Unit variable cost | $ |
| Unit contribution margin | $ |
3. Compute the break-even sales (units) for thecurrent year. Enter the final answers rounded to the nearest wholenumber.
units
4. Compute the break-even sales (units) underthe proposed program for the following year. Enter the finalanswers rounded to the nearest whole number.
units
5. Determine the amount of sales (units) thatwould be necessary under the proposed program to realize the$54,400 of income from operations that was earned in the currentyear. Enter the final answers rounded to the nearest wholenumber.
units
6. Determine the maximum income from operationspossible with the expanded plant. Enter the final answer rounded tothe nearest dollar.
$
7. If the proposal is accepted and sales remainat the current level, what will the income or loss from operationsbe for the following year? Enter the final answer rounded to thenearest dollar.
$
8. Based on the data given, would you recommendaccepting the proposal?
- In favor of the proposal because of the reduction in break-evenpoint.
- In favor of the proposal because of the possibility ofincreasing income from operations.
- In favor of the proposal because of the increase in break-evenpoint.
- Reject the proposal because if future sales remain at thecurrent level, the income from operations will increase.
- Reject the proposal because the sales necessary to maintain thecurrent income from operations would be below the current yearsales.
Choose the correct answer.
