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 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 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 176,600 units at a price of $81 per unit during the current year. Its income statement is as follows:
|
Sales |
|
|
$14,304,600 |
|
Cost of goods sold |
|
|
5,076,000 |
|
Gross profit |
|
|
$9,228,600 |
|
Expenses: |
|
|
|
|
Selling expenses |
$2,538,000 |
|
|
|
Administrative expenses |
1,512,000 |
|
|
|
Total expenses |
|
|
4,050,000 |
|
Income from operations |
|
|
$5,178,600 |
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 $1,296,000 in yearly sales. The expansion will increase fixed costs by $172,800, but will not affect the relationship between sales and variable costs.
Required:
- 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 |
- 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 |
- Compute the break-even sales (units) for the current year.
fill in the blank 5 units - Compute the break-even sales (units) under the proposed program for the following year.
fill in the blank 6 units - Determine the amount of sales (units) that would be necessary under the proposed program to realize the $5,178,600 of income from operations that was earned in the current year.
fill in the blank 7 units - Determine the maximum income from operations possible with the expanded plant.
$fill in the blank 8 - 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 - Based on the data given, would you recommend accepting the proposal?
- 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.
Choose the correct answer.
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