Answered: 1. Determine the total variable costs…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Darby Company, operating at full capacity, sold 122,200 units at a price of $102 per unit during the current year. Its income statement is as follows:

Sales		$12,464,400
Cost of goods sold		4,420,000
Gross profit		$8,044,400
Expenses:
Selling expenses	$2,210,000
Administrative expenses	1,326,000
Total expenses		3,536,000
Income from operations		$4,508,400

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 $1,122,000 in yearly sales. The expansion will increase fixed costs by $149,600, but will not affect the relationship between sales and variable costs.

1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs
Total fixed costs
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
Unit contribution margin
3. Compute the break-even sales (units) for the current year.
units

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