Reference no: EM132857299
Question - Darby Company, operating at full capacity, sold 70,200 units at a price of $135 per unit during the current year. Its income statement for the current year is as follows:
Sales $9,477,000
Cost of goods sold 4,680,000
Gross profit $4,797,000
Expenses: Selling expenses $2,340,000
Administrative expenses 2,340,000
Total expenses 4,680,000
Income from operations $117,000
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 $810,000 in yearly sales. The expansion will increase fixed costs by $81,000, 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.
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
3. Compute the break-even sales (units) for the current year.
4. Compute the break-even sales (units) under the proposed program for the following year.
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $117,000 of income from operations that was earned in the current year.
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?