V2.cengagenow.com 0 CengageNOWv2 | Online teaching and learning resource Determi
ID: 2550916 • Letter: V
Question
V2.cengagenow.com 0 CengageNOWv2 | Online teaching and learning resource Determine The Amount Of Sales (units) That Would B Darby Company, operating at full capacity, sold 113,400 units at a price of $51 per unit during the current year. Its income statement for the current year is as follows: Sales Cost of goods sold Gross profit Expenses $5,783,400 2,856,000 $2,927,400 Selling expenses $1,428,000 Administrative expenses 1,428,000 Total expenses 2,856,000 Income from operations $71,400 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold Selling expenses Administrative expenses 70% 75% 50% 30% 25% 50% Management is considering a plant expansion program that will permit an increase of $459,000 in yearly sales. The expansion will increase fixed costs by $45,900, but will not affect the relationship between sales and variable costs Rennired Previous Check My WorkExplanation / Answer
Note: As per rule, I am answering first 4 parts of this question.
(2).
Unit variable cost = $33.37
Unit contribution margin = $17.63
Explanation;
Variable portion of cost of goods sold ($2856000 * 0.70) = $1999200
Variable portion of selling expense ($1428000 * 0.75) = $1071000
Variable portion of administrative expense ($1428000 * 0.50) = $714000
Thus total variable costs ($1999200 + $1071000 + $714000) = $3784200
Number of units = 113400
Unit variable cost ($3784200 / 113400) = $33.37
Unit contribution margin ($51 – $33.37) = $17.63
(3).
Break-even sales (units) = 109348 Units
Explanation;
Fixed portion of cost of goods sold ($2856000 * 0.30) = $856800
Fixed portion of selling expense ($1428000 * 0.25) = $357000
Fixed portion of administrative expense ($1428000 * 0.50) = $714000
Thus total fixed costs ($856800 + $357000 + $714000) = $1927800
Unit contribution margin = $17.63
Formula for break-even sales (units) = Fixed costs / Unit contribution margin
Break-even sales (units) ($1927800 / $17.63) = 109347.70 or 109348 units
(4).
Break-even sales (units) = 111952 units
Explanation;
New total fixed costs ($1927800 + $45900) = $1973700
Unit contribution margin = $17.63
Formula for break-even sales (units) = Fixed costs / Unit contribution margin
Break-even sales (units) ($1973700 / $17.63) = 111951.22 or 111952 units
(5).
Break-even sales (units) = 116002 units
Explanation;
New total fixed costs ($1927800 + $45900) = $1973700
Desired profit = $71400
Unit contribution margin = $17.63
Formula for break-even sales (units) = Fixed costs + Desired profit / Unit contribution margin
Break-even sales (units) ($1973700 + $71400 / $17.63) = 116001.13 or 116002 units
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