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. 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?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.2.5P

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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.

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?

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