Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 152,400 units at a price of $120 per unit during the current year. Its income statement is as follows: Sales $18,288,000 Cost of goods sold 6,480,000 Gross profit $11,808,000 Expenses: Selling expenses $3,240,000 Administrative expenses 1,960,000 Total expenses 5,200,000 Income from operations $6,608,000 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 $1,440,000 in yearly sales. The expansion will increase fixed costs by $192,000, 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. Total variable costs $fill in the blank 1 Total fixed costs $fill in the blank 2 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost $fill in the blank 3 Unit contribution margin $fill in the blank 4 3. Compute the break-even sales (units) for the current year. fill in the blank 5 units
Break-Even Sales Under Present and Proposed Conditions
Darby Company, operating at full capacity, sold 152,400 units at a price of $120 per unit during the current year. Its income statement is as follows:
| Sales | $18,288,000 | ||
| Cost of goods sold | 6,480,000 | ||
| Gross profit | $11,808,000 | ||
| Expenses: | |||
| Selling expenses | $3,240,000 | ||
| Administrative expenses | 1,960,000 | ||
| Total expenses | 5,200,000 | ||
| Income from operations | $6,608,000 |
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 $1,440,000 in yearly sales. The expansion will increase fixed costs by $192,000, 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.
| Total variable costs | $fill in the blank 1 |
| Total fixed costs | $fill in the blank 2 |
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
| Unit variable cost | $fill in the blank 3 |
| Unit contribution margin | $fill in the blank 4 |
3. Compute the break-even sales (units) for the current year.
fill in the blank 5 units
4. Compute the break-even sales (units) under the proposed program for the following year.
fill in the blank 6 units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $6,608,000 of income from operations that was earned in the current year.
fill in the blank 7 units
6. Determine the maximum income from operations possible with the expanded plant.
$fill in the blank 8
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
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