Need help with part 6:Need help with part 6: Determine the maximum income from o

Question

Need help with part 6:Need help with part 6: Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.

Break-Even Sales Under Present and Proposed Conditions

Darby Company, operating at full capacity, sold 98,550 units at a price of $123 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 $1,107,000 in yearly sales. The expansion will increase fixed costs by $110,700, but will not affect the relationship between sales and variable costs.

Sales $12,121,650 Cost of goods sold 5,986,000 Gross profit $6,135,650 Expenses: Selling expenses $2,993,000 Administrative expenses 2,993,000 Total expenses 5,986,000 Income from operations $149,650

Explanation / Answer

Existing variable costs total as a % of sales:

With the expanded plant income from operations is:

Existing Total Variable Fixed Sales         12,121,650 Cost of goods sold           5,986,000 4,190,200.0      1,795,800 Selling expenses           2,993,000    748,250.00      2,244,750 Administrative           2,993,000 1,496,500.0      1,496,500 Total         11,972,000 6,434,950.0 5,537,050.0 As a % of sales 53.0864%

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