Darby Company, operating at full capacity, sold 120,200 units at a price of $90 per unit during the current year. Its income statement is as follows: Sales $10,818,000 Cost of goods sold 3,840,000 Gross profit $6,978,000 Expenses: Selling expenses $1,920,000 Administrative expenses 1,140,000 Total expenses 3,060,000 Income from operations $3,918,000 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 $990,000 in yearly sales. The expansion will increase fixed costs by $132,000, but will not affect the relationship between sales and variable costs.

Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 120,200 units at a price of $90 per unit during the current year. Its income statement is as follows: Sales $10,818,000 Cost of goods sold 3,840,000 Gross profit $6,978,000 Expenses: Selling expenses $1,920,000 Administrative expenses 1,140,000 Total expenses 3,060,000 Income from operations $3,918,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50% Administrative 30% 70% expenses Management is considering a plant expansion program for the following year that will permit an increase of $990,000 in yearly sales. The expansion will increase fixed costs by $132,000, but will not affect the relationship between sales and variable costs. 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $3,918,000 of income from operations that was earned in the current year. 120,200 X units 6. Determine the maximum income from operations possible with the expanded plant. 7,212,000 X 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? $ 7,212,000 X Income