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 99,900 units at a price of $135 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 $1,080,000 in yearly sales. The expansion will increase fixed costs by $108,000, 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 $166,500 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.:
$ ______ (income or loss?)

8. Based on the data given, would you recommend accepting the proposal?

A. In favor of the proposal because of the reduction in break-even point.

B. In favor of the proposal because of the possibility of increasing income from operations.

C. In favor of the proposal because of the increase in break-even point.

D. Reject the proposal because if future sales remain at the current level, the income from operations will increase.

E. 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 for question 8.

Sales $13,486,500 Cost of goods sold 6,660,000 Gross profit $6,826,500 Expenses: Selling expenses $3,330,000 Administrative expenses 3,330,000 Total expenses 6,660,000 Income from operations $166,500

Explanation / Answer

Solution 1 Calculation of Fixed and variable cost Particulars Total Variable Fixed Cost of goods sold 6660000 4662000 1998000 selling 3330000 2497500 832500 admin 3330000 1665000 1665000 Total 8824500 4495500 Solution 2 Unit variable cost and margin Sales per unit 135 Variable cost per unit 88.33 (Total variable cost/ no of units sold) Margin 46.67 Solution 3 Break even sales units = Fixed cost / contribution margin per unit = 4495500/ 46.67 96325.26248 or 96325 Solution 4 Break even sales unit = Fixed cost + additional fixed cost/ margin per unit = (4495500+108000)/46.67 98639.3829 or 98639 Solution 5 Break even sales units = proposed Fixed cost+ profit/ margin per unit = (4495500+108000+166500)/46.67 102206.9852 or 102207 Solution 6 Maximum income Amount Units Sales (existing + increased) 14566500 107900 Less: variable 9530807 Gp 5035693 Less fixed 4603500 Profit 432193 Solution 7 If sales remains at same level then new profit will be as follows: Existing profit 166500 Less : new fixed cost 108000 New profit 58500 Solution 8 Answer is b as there is possibility of increase in income .

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

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