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Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 500,000 units at a price of $94 per unit during the current year. Its income statement is as follows: Sales     $47,000,000 Cost of goods sold     25,000,000 Gross profit     $22,000,000 Expenses:       Selling expenses $4,000,000     Administrative expenses 3,000,000     Total expenses     7,000,000 Income from operations     $15,000,000 The division of costs between variable and fixed 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 for the following year that will permit an increase of $3,760,000 in yearly sales. The expansion will increase fixed costs by $1,800,000 but will not affect the relationship between sales and variable costs. 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 $15,000,000 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

- November 14, 2022 - Edwin Tunner

Break-Even Sales Under Present and Proposed Conditions

Darby Company, operating at full capacity, sold 500,000 units at a price of $94 per unit during the current year. Its income statement is as follows:

Sales     $47,000,000
Cost of goods sold     25,000,000
Gross profit     $22,000,000
Expenses:      
Selling expenses $4,000,000    
Administrative expenses 3,000,000    
Total expenses     7,000,000
Income from operations     $15,000,000

The division of costs between variable and fixed 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 for the following year that will permit an increase of $3,760,000 in yearly sales. The expansion will increase fixed costs by $1,800,000 but will not affect the relationship between sales and variable costs.

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 $15,000,000 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 

 

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