Obj. 2, 3Darby Company, operating at full capacity sold soo,ooo units at a price

Question

Obj. 2, 3Darby Company, operating at full capacity sold soo,ooo units at a price of $94 per unit during the current year Its income statement is as follows 47,000,000 Cost of goods sold Geoss proft Expenses: 22.000.000 000,000 15,000,000 The division of costs between variable and fixed is as follows: Variable 70% 75% Eixed 30% 25% 50% Cost of goods sold Selling expenses Management is considering a plant expansion program for the following year that will permit an increase of $3760,0oo in yearly sales. The expansion will increase fixed costs by $1,8oo,ooo but will not affect the relationship between sales and variable costs. Instructions 1. Determine the total variable costs and the total fixed costs for the current year 2 Determine (A) the unit variable cost and (B) the unit contribution margin for the current year Answer

Explanation / Answer

1 Variable Costs Fixed Costs Cost of Goods Sold 17500000 7500000 (25000000*70%) (25000000*30%) Selling Expenses 3000000 1000000 (4000000*75%) (4000000*25%) Administrative Expenses 1500000 1500000 (3000000*50%) (3000000*50%) Total 22000000 10000000 2 Unit Variable Costs - 22000000/500000 44 Contribution per unit - Sales - variable unit cost 94-44 50 3 Break Even Sales - Fixed Costs/Contribution Margin 10000000/50 200000 4 Break Even Sale - Fixed Costs/Contribution Margin (10000000+1800000)/50 236000 5 Units to be Sold - (10000000+1800000+15000000)/$50 536000 units 6 Maximum Income - (47000000+3760000)*(50/94) - (10000000+1800000) 27000000 11800000 Maximum Income 15200000 7 Income from constant sales - (47000000)*(50/94) - (10000000+1800000) 25000000 11800000 Income from constant sales 13200000 8 The project would be recommended if the company is able to sell extra 36000 units which is more than the break even point of current situation, as the fixed cost is increasing the company should atleast achieve the extra units

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