Darby Company, operating at full capacity, sold 165,500 units at a price of $87 per unit during the current year. Its income statement is as follows: Sales $14,398,500 Cost of goods sold 5,104,000 Gross profit $9,294,500 Expenses: Selling expenses $2,552,000 Administrative expenses 1,537,000 Total expenses 4,089,000 $5,205,500 Income from operations ) The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses S0% S0% Administrative 30% 70% expenses Management is considering a plant expansion program for the following year that will permit an increase of $1,305,000 in yearly sales. The expansion will increase fixed costs by $174,000, 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. 4,799,500 4,393,500 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 29 Unit contribution margin 26.55 3. Compute the break-even sales (units) for the current year. 72,680 units
Darby Company, operating at full capacity, sold 165,500 units at a price of $87 per unit during the current year. Its income statement is as follows: Sales $14,398,500 Cost of goods sold 5,104,000 Gross profit $9,294,500 Expenses: Selling expenses $2,552,000 Administrative expenses 1,537,000 Total expenses 4,089,000 $5,205,500 Income from operations ) The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses S0% S0% Administrative 30% 70% expenses Management is considering a plant expansion program for the following year that will permit an increase of $1,305,000 in yearly sales. The expansion will increase fixed costs by $174,000, 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. 4,799,500 4,393,500 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 29 Unit contribution margin 26.55 3. Compute the break-even sales (units) for the current year. 72,680 units
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Darby Company, operating at full capacity, sold 165,500 units at a price of $87 per unit during the current year. Its income statement is as follows:
Sales
$14,398,500
Cost of goods sold
5,104,000
Gross profit
$9,294,500
Expenses:
Selling expenses
$2,552,000
Administrative expenses 1,537,000
Total expenses
4,089,000
Income from operations
$5,205,500
The division of costs between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
60%
40%
Selling expenses
50%
50%
Administrative
30%
70%
еxpenses
Management is considering a plant expansion program for the following year that will permit an increase of $1,305,000 in yearly sales. The expansion will increase
fixed costs by $174,000, 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
4,799,500
Total fixed costs
4,393,500
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
29
Unit contribution margin
26.55
3. Compute the break-even sales (units) for the current year.
72,680 units
4. Compute the break-even sales (units) under the proposed program for the following year.
units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,205,500 of income from operations that was earned
in the current year.
units
6. Determine the maximum income from operations possible with the expanded plant.
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?
8. Based on the data given, would you recommend accepting the proposal?
a. In favor of the proposal because of the reduction in break-even point.
b. In favor of the proposal because of the possibility of increasing income from operations.
c. In favor of the proposal because of the increase in break-even point.
d. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
e. 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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