Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 165,500 units at a price of $63 per unit during the

image text in transcribedimage text in transcribed

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 165,500 units at a price of $63 per unit during the current year. Its income statement is as follows: Sales $10,426,500 Cost of goods sold 3,696,000 Gross profit $6,730,500 Expenses: Selling expenses $1,848,000 Administrative expenses 1,113,000 Total expenses 2,961,000 Income from operations $3,769,500 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 Management is considering a plant expansion program for the following year that will permit an increase of $945,000 in yearly sales. The expansion will increase fixed costs by $126,000, 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. 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 3,475,500 Total fixed costs 3,181,500 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 21 Unit contribution margin 42 3. Compute the break-even sales (units) for the current year. 75,750 units 4. Compute the break-even sales (units) under the proposed program for the following year. 78,750 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $3,769,500 of income from operations that was earned the current year. 168,500 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? 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Valuation For Accountants A Short Course Based On IFRS

Authors: Stephen Lynn

1st Edition

9811503567, 9789811503566

More Books

Students also viewed these Accounting questions

Question

How does careful revision reflect the you attitude?

Answered: 1 week ago

Question

Question 33 of 33

Answered: 1 week ago