Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 127,900 units at a price of $51 per unit during the current year. Its income statement is as follows: Sales $6,522,900 Cost of goods sold 2,312,000 Gross profit $4,210,900 Expenses: Selling expenses $1,156,000 Administrative expenses 697,000 Total expenses 1,853,000 Income from operations $2,357,900 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 $510,000 in yearly sales. The expansion will increase fixed costs by $68,000, but will not affect the relationship between sales and variable costs. Required: 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? $fill in the blank 9 8. Based on the data given, would you recommend accepting the proposal? In favor of the proposal because of the reduction in break-even point. In favor of the proposal because of the possibility of increasing income from operations. In favor of the proposal because of the increase in break-even point. Reject the proposal because if future sales remain at the current level, the income from operations will increase. 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.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter8: Inventories: Special Valuation Issues

Section: Chapter Questions

Problem 11RE: Johnson Corporation had beginning inventory of 20,000 at cost and 35,000 at retail. During the year,...

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Break-Even Sales Under Present and Proposed Conditions

Darby Company, operating at full capacity, sold 127,900 units at a price of $51 per unit during the current year. Its income statement is as follows:

Sales		$6,522,900
Cost of goods sold		2,312,000
Gross profit		$4,210,900
Expenses:
Selling expenses	$1,156,000
Administrative expenses	697,000
Total expenses		1,853,000
Income from operations		$2,357,900

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 $510,000 in yearly sales. The expansion will increase fixed costs by $68,000, but will not affect the relationship between sales and variable costs.

Required:

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?
$fill in the blank 9

8. Based on the data given, would you recommend accepting the proposal?

In favor of the proposal because of the reduction in break-even point.
In favor of the proposal because of the possibility of increasing income from operations.
In favor of the proposal because of the increase in break-even point.
Reject the proposal because if future sales remain at the current level, the income from operations will increase.
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.

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