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 83,700 units at a price of $48 per unit during the current year. Its income statement for the current year is as follows: Sales $4,017,600 Cost of goods sold 1,984,000 Gross profit $2,033,600 Expenses: Selling expenses $992,000 Administrative expenses 992,000 Total expenses 1,984,000 Income from operations $49,600 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 $336,000 in yearly sales. The expansion will increase fixed costs by $33,600, but will not affect the relationship between sales and variable costs. Based on the data given, would you recommend accepting the proposal?Choose the correct answer. 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.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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 83,700 units at a price of $48 per unit during the current year. Its income statement for the current year is as follows:
|
Sales |
|
|
$4,017,600 |
|
Cost of goods sold |
|
|
1,984,000 |
|
Gross profit |
|
|
$2,033,600 |
|
Expenses: |
|
|
|
|
Selling expenses |
$992,000 |
|
|
|
Administrative expenses |
992,000 |
|
|
|
Total expenses |
|
|
1,984,000 |
|
Income from operations |
|
|
$49,600 |
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 $336,000 in yearly sales. The expansion will increase fixed costs by $33,600, but will not affect the relationship between sales and variable costs.
Based on the data given, would you recommend accepting the proposal?Choose the correct answer.
- 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.
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