Break-Even Analysis The Junior League of Yadkinville, California, collected recipes from members and published a cookbook entitled Food for Everyone. The book will sell for $35 per copy. The chairwoman of the cookbook development committee estimated that the club needed to sell 10,600 books to break even on its $137,800 investment. What is the variable cost per unit assumed in the Junior League's analysis? per unit Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 148,400 units at a price of $93 per unit during the current year. Its income statement is as follows: Sales $13,801,200 Cost of goods sold 4,898,000 Gross profit $8,903,200 Expenses: Selling expenses $2,449,000 Administrative expenses 1,457,000 Total expenses 3,906,000 Income from operations $4,997,200 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50% Administrative 30% 70% expenses Management is considering a plant expansion program for the following year that will permit an increase of $1,116,000 in yearly sales. The expansion will increase fixed costs by $148,800, 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. Total variable costs Total fixed costs 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin 3. Compute the break-even sales (units) for the current year. units 4. Compute the break-even sales (units) under the proposed program for the following year. units sales (units) that would be necessary under the proposed program to realize the $4,997,200 of income from operations that was earned in the current year. 5. Determine the amount units 6. Determine the maximum income from operations possible with the expanded plant. 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? $ Income 8. Based on the data given, would you recommend accepting the proposal? favor of the proposal because of the reduction in break-even point. b. 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
