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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

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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