etermine the amount of sales (units) that would be necessary under Break-Even Sa

Question

etermine 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 83,700 units at a price of $63 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 $441,000 in yearly sales. The expansion will increase fixed costs by $44,100, but will not affect the relationship between sales and variable costs.

6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.
$

Sales $5,273,100 Cost of goods sold 2,604,000 Gross profit $2,669,100 Expenses: Selling expenses $1,302,000 Administrative expenses 1,302,000 Total expenses 2,604,000 Income from operations $65,100

Explanation / Answer

Answer = Maximum income from expansion = $ 108,290

Addititional units of production due to sales of $ 441,000 = $ 441,000 / $ 63 = 7,000 Units Variable Cost of COGS = (70% of $ 2,604,000) $     18,22,800 "/"by 83,700 units =         21.78 Variabl Cost of Selling Expenses = $     13,02,000 Variabl Cost of Selling Expenses (75% Variable) = $       9,76,500 "/"by 83,700 units =         11.67 Variable cost of Administrative Exp (50% of $ 13,02,000) = $       6,51,000 "/"by 83,700 units =           7.78 CALCULATION OF THE ADDITINOAL INCOME DUE TO INCREASE IN PLANT CAPACITY Sales $       4,41,000 Less: Cost of Goods Sold(7000 units X 21.78) $       1,52,460 Gross Profit $       2,88,540 Less: Variable Cost Selling expenses (7,000 units X $ 11.67) $           81,690 Administrative Expenses (7,000 units X 7.78) $           54,460 Less: Fixed Cost $           44,100 Net Revenue $       1,08,290

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