Determine the amount of sales (units) that would be necessary under Break-Even S
ID: 2517902 • Letter: D
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 116,100 units at a price of $84 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 $756,000 in yearly sales. The expansion will increase fixed costs by $75,600, 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.
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.
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 $120,400 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.
Sales $9,752,400 Cost of goods sold 4,816,000 Gross profit $4,936,400 Expenses: Selling expenses $2,408,000 Administrative expenses 2,408,000 Total expenses 4,816,000 Income from operations $120,400Explanation / Answer
Note: There are more than 4 parts of this question, so as per rule I am answering first 4 parts.
(1).
Total variable costs
$6381200
Total fixed costs
$3250800
Explanation;
Total
Fixed cost
Variable cost
Cost of goods sold
$4816000
$1444800
$3371200
Selling expenses
$2408000
$602000
$1806000
Administrative expenses
$2408000
$1204000
$1204000
Total
$9632000
$3250800
$6381200
(2).
Unit variable cost
$55
Unit contribution margin
$29
Explanation;
Total variable costs = $6381200
Number of units sold = 116100
Thus unit variable cost ($6381200 / 116100) = $54.96 or $55
Unit contribution margin = Sale price – Unit variable cost
Unit contribution margin ($84 – $55) = $29
(3). Break-even sales (units) = 112097 Units
Explanation;
Break-even sales (units) = Fixed costs / Contribution per unit
Fixed costs = $3250800
Unit contribution margin = $29
Thus, Break-even sales (units) ($3250800 / $29) = 112096.55 units or 112097 Units
(4). Under the proposed program, Break-even sales (units) = 114704 Units
Explanation;
Break-even sales (units) = Fixed costs / Contribution per unit
Fixed costs ($3250800 + $75600) = $3326400
Unit contribution margin = $29
Thus, Break-even sales (units) ($3326400 / $29) = 114703.44 units or 114704 Units
Total variable costs
$6381200
Total fixed costs
$3250800
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.