Determine the amount of sales (units) that would be necessary under Break-Even S

Question

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 87,750 units at a price of $57 per unit during the current year. Its income statement for the current year is as follows: Sales $5,001,750 Cost of goods sold 2,470,000 Gross profit $2,531,750 Expenses: Selling expenses $1,235,000 Administrative expenses 1,235,000 Total expenses 2,470,000 Income from operations $61,750 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 $399,000 in yearly sales. The expansion will increase fixed costs by $39,900, 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 $ 3,272,750 Total fixed costs $ 1,667,250 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 $ 37.30 Unit contribution margin $ 19.70 3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number. 84,632 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. 86,657 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $61,750 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. 89,792 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.

Explanation / Answer

As per policy, only four parts of a question is allowed to answer, so answering first five parts here:

5) Units to be sold for proposed gain = FC + Proposed gain / Contribution per unit =

(1667250+39900+61750) /19.70 = 89792 units

====

1) Breaking down of costs into variable and fixed: Variable Fixed Total COGS 1729000 741000 2470000 selling expenses 926250 308750 1235000 Admin exp 617500 617500 1235000 Total 3272750 1667250 4940000 2) Units sold 87750 a) Unit variable cost = 3272750/87750 = $37.30 Unit selling price = $57 Contribution = SP - VC = 57 - 37.30 = 19.70 3) BEP (current year) = Total FC / contribution per unit = 1667250/19.70 = 84632 units 4) BEP (proposed) = Total FC / contribution per unit = (1667250+39900) /19.70 = 86657 units

5) Units to be sold for proposed gain = FC + Proposed gain / Contribution per unit =

(1667250+39900+61750) /19.70 = 89792 units

====

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.