Break-Even Sales Under Present and Proposed Conditions

Darby Company, operating at full capacity, sold 116,500 units at a price of $132 per unit during the current year. Its income statement is as follows:

Sales			$15,378,000
Cost of goods sold			5,456,000
Gross profit			$9,922,000
Expenses:
Selling expenses	$2,728,000
Administrative expenses	1,628,000
Total expenses			4,356,000
Income from operations			$5,566,000

The division of costs between variable and fixed is as follows:

	Variable		Fixed
Cost of goods sold	60%		40%
Selling expenses	50%		50%
Administrative expenses	30%		70%

Management is considering a plant expansion program for the following year that will permit an increase of $1,188,000 in yearly sales. The expansion will increase fixed costs by $158,400, 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	$fill in the blank 1
Total fixed costs	$fill in the blank 2

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

Unit variable cost	$fill in the blank 3
Unit contribution margin	$fill in the blank 4

3. Compute the break-even sales (units) for the current year. fill in the blank 5 units

4. Compute the break-even sales (units) under the proposed program for the following year. fill in the blank 6 units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,566,000 of income from operations that was earned in the current year. fill in the blank 7 units

6. Determine the maximum income from operations possible with the expanded plant. $fill in the blank 8

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? $fill in the blank 9