Darby Company, operating at full capacity, sold 500,000 units at a price of $94 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $4,000,000 Administrative expenses 3,000,000 Total expenses Selling expenses 7,000,000 Income from operations $15,000,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold Selling expenses Administrative expenses 70% 75% Required: $47,000,000 25,000,000 $22,000,000 50% 30% 25% 50% Management is considering a plant expansion program for the following year that will permit an increase of $3,760,000 in yearly sales. The expansion will increase fixed costs by $1,800,000 but will not affect the relationship between sales and variable costs.

The devision of costs betwech veriable and fiud is as follews: $3,000,000 but will hec alfect the relationship betwern whes and vanatile conts. units 6. Determine the moximum income from operations possible with the expanded plant. 7. If the proposal is accepted and sales remain at the current level, what will the incarne or loss from operations be for the following vear? 3 8. Based on the data grven, would you recommend accepting the proposar? a. In favor of the proposal because of the reduction in break even point. b. In favor of the proposal becauve of the posstility of increasing income from operatans. c in favor of the proposal because of the increase in treak-even point. d. Beject 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 curvent income from operations would be below the currat year sales. Choose the correct answer: Required: 1. Defernine the total varakle costs and the total foned costs for the carren jear: Total variable eists 9 x teralfiend costs 4 x Unit variablet cont itinar conarivition maroin 3. Compute the break-even sales (units) fer the curpent vas: units unte. vear: und