Answer Happy

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 124,200 units at a price of $120 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: Selling expenses $2,640,000 Administrative expenses 1,600,000 Total expenses Income from operations 4,240,000 $5,384,000 The division of costs between variable and fixed is as follows: Fixed Variable Cost of goods sold Selling expenses 40% 50% Administrative. 70% expenses Management is considering a plant expansion program for the following year that will permit an increase of $1,200,000 in yearly sales. The expansion will increase fixed costs by $160,000, 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 Total variable costs $14,904,000 5,280,000 $9,624,000 60% 50% 30% Total fixed costs 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

Unit variable cost Unit contribution margin 3. Compute the break-even sales (units) for the current year. units 4. Compute the break-even sales (units) under the proposed program for the following year. units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,384,000 of income from operations that was earned in the current year. units 6. Determine the maximum income from operations possible with the expanded plant. 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? Income