Question
Need help with part 6:Need help with part 6: Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded
Need help with part 6:Need help with part 6: Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 98,550 units at a price of $123 per unit during the current year. Its income statement for the current year is as follows:
Sales | $12,121,650 | ||
Cost of goods sold | 5,986,000 | ||
Gross profit | $6,135,650 | ||
Expenses: | |||
Selling expenses | $2,993,000 | ||
Administrative expenses | 2,993,000 | ||
Total expenses | 5,986,000 | ||
Income from operations | $149,650 |
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 $1,107,000 in yearly sales. The expansion will increase fixed costs by $110,700, but will not affect the relationship between sales and variable costs.
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