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 124,200 units at a price of $108 per unit during the current year. Its income statement for the current year is as follows: Sales $13,413,600 Cost of goods sold 6,624,000 Gross profit $6,789,600 Expenses: Selling expenses $3,312,000 Administrative expenses 3,312,000 Total expenses 6,624,000 Income from operations $165,600 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 $1,188,000 in yearly sales. The expansion will increase fixed costs by $118,800, but will not affect the relationship between sales and variable costs. 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 $8776800 Total fixed costs $4471200 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 $70.67 Unit contribution margin $37.33 3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number. 119775 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. 122957 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $165,600 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. ________ units 6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.$________ 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.$_________
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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 124,200 units at a price of $108 per unit during the current year. Its income statement for the current year is as follows:
Sales | $13,413,600 | ||
Cost of goods sold | 6,624,000 | ||
Gross profit | $6,789,600 | ||
Expenses: | |||
Selling expenses | $3,312,000 | ||
Administrative expenses | 3,312,000 | ||
Total expenses | 6,624,000 | ||
Income from operations | $165,600 |
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 $1,188,000 in yearly sales. The expansion will increase fixed costs by $118,800, but will not affect the relationship between sales and variable costs.
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 | $8776800 |
Total fixed costs | $4471200 |
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 | $70.67 |
Unit contribution margin | $37.33 |
3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number.
119775 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.
122957 units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $165,600 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number.
________ units
6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.
$________
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.
$_________
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