Determine the amount of sales (units) that would be necessary under Break-Even S
ID: 2550759 • 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 113,400 units at a price of $51 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 $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.
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 $71,400 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.
$
Explanation / Answer
1.
Fixed cost
Cost of goods sold ( $ 2,856,000 x 0.7)
$ 1,999,200
Selling expenses ( $ 1,428,000 x 0.75)
$ 1,071,000
Administrative expenses ( $ 1,428 x 0.5)
$ 714,000
Total Fixed cost
$ 3,784,200
Variable cost
Cost of goods sold ( $ 2,856,000 x 0.3)
$ 856,800
Selling expenses ( $ 1,428,000 x 0.25)
$ 357,000
Administrative expenses ( $ 1,428 x 0.5)
$ 714,000
Total Variable cost
$ 1,927,800
Total Fixed cost
$ 3,784,200
Total Variable cost
$ 1,927,800
2.
Variable cost per unit = Total variable cost /No. of units
= $ 1,927,800/113,400 = $ 17
Contribution margin per unit = sales – variable cost = $ 51 – $ 17 = $ 34
Unit Variable cost
$ 17
Unit Contribution margin
$ 34
3.
Break-even sales in unit = Fixed cost/ Contribution margin
= $ 3,784,200/$ 34 = 111,300 units
4.
New fixed cost = $ 3,784,200 + $ 45,900 = $ 3,830,100
Break-even sales in unit under proposed program = New fixed cost/ Contribution margin
= $ 3,830,100/$ 34 = 112,650 units
*****Answered first four questions.
Fixed cost
Cost of goods sold ( $ 2,856,000 x 0.7)
$ 1,999,200
Selling expenses ( $ 1,428,000 x 0.75)
$ 1,071,000
Administrative expenses ( $ 1,428 x 0.5)
$ 714,000
Total Fixed cost
$ 3,784,200
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