HELP WITH QUESTION #6 Please

Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 125,550 units at a price of $99 per unit during the current year. Its income statement for the current year is as follows: Sales $12,429,450 Cost of goods sold 6,138,000 Gross profit $6,291,450 Expenses: Selling expenses $3,069,000 Administrative expenses 3,069,000 Total expenses 6,138,000 Income from operations $153,450 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $1,089,000 in yearly sales. The expansion will increase fixed costs by $108,900, but will not affect the relationship between sales and variable costs. 1. Required:

1. Determine the total variable costs and the total fixed costs for the current year. Enter the final answers rounded to the nearest dollar. Total variable costs $ Total fixed costs $ HOW TO: o Variable Costs = 6,138,000*70% = 4,296,600 (Cost of Goods Sold) + 3,069,000*75% = 2,301,750 (Selling Expenses) + 3,069,000*50% = 1,534,500 (Administrative Expenses) = $8,132,850 o Fixed Costs = 6,138,000*30% = 1,841,400 (Cost of Goods Sold) + 3,069,000*25% = 767,250 (Selling Expenses) + 3,069,000*50% = 1,534,500 (Administrative Expenses) = $4,143,150

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Enter the final answers rounded to two decimal places. Unit variable cost $ Unit contribution margin $ o HOW TO: Unit Variable Cost = Total Variable Costs/Total Units = 8,132,850/125,550 = $64.78 per unit Unit Contribution Margin = Selling Price Per Unit - Variable Cost Per Unit = 99 64.78 = $34.22 per unit

3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number. units o HOW TO: o The break-even point in units can be calculated with the use of following formula: o Break-Even Point (Units) = Fixed Cost/Contribution Margin Per Unit o Using the values calculated in Part 1 and Part 3, we get, o Break-Even Point (Units) = 4,143,150/34.22 = 121,074 units 4. Compute the break-even sales (units) under the proposed program for the following year. Enter the final answers rounded to the nearest whole number. units o HOW TO: o The break-even point under the proposed program is calculated as follows: o Break-Even Point (Units) = (Revised Fixed Cost)/Contribution Margin Per Unit = (4,143,150 + 153,450)/34.22 = 124,256units o 10

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $153,450 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. units o HOW TO: o Desired Sales (Units) = (Revised Fixed Cost 4,296,600 + Net Income 153,450)/Contribution Margin Per Unit = (4,296.600 + 153,450)/34.22 = 135,625 units How to:

5. (Fixed costs + Target profit) divided by unit contribution margin equals sales units. Units to be sold to get a target profit = (Fixed cost + Target profit)/Contribution margin per unit = (4,252,050 + 153,450)/34.22 = 128,741 units 6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar. $ HOW TO:

6. Determine the increase in units by dividing the sales increase by the price per unit. Add the additional revenue and additional fixed costs when calculating

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? Enter the final answer rounded to the nearest dollar. $ income HOW TO: 153,450 108,900 = 44550

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. 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. Choose the correct answer. B Check My Work