Home / Questions / Darby Company, operating at full capacity, sold 172,900 units at a price of $75 per unit during the
Darby Company, operating at full capacity, sold 172,900 units at a price of $75 per unit during the current year. Its income statement is as follows:
Sales | $12,967,500 | ||
Cost of goods sold | 4,600,000 | ||
Gross profit | $8,367,500 | ||
Expenses: | |||
Selling expenses | $2,300,000 | ||
Administrative expenses | 1,375,000 | ||
Total expenses | 3,675,000 | ||
Income from operations | $4,692,500 |
The division of costs between variable and fixed is as follows:
Variable | Fixed | |||
Cost of goods sold | 60% | 40% | ||
Selling expenses | 50% | 50% | ||
Administrative expenses | 30% | 70% |
Management is considering a plant expansion program for the following year that will permit an increase of $1,200,000 in yearly sales. The expansion will increase fixed costs by $160,000, 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 | $ |
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
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 $4,692,500 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?
$ Income
8. Based on the data given, would you recommend accepting the proposal?
Apr 03 2020 View more View Less
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