Question
In: Accounting
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $189 per unit during the current year. Its income statement is as follows:
| Sales | $189,000,000 | ||
| Cost of goods sold | (99,000,000) | ||
| Gross profit | $90,000,000 | ||
| Expenses: | |||
| Selling expenses | $16,000,000 | ||
| Administrative expenses | 15,400,000 | ||
| Total expenses | (31,400,000) | ||
| Operating income | $58,600,000 |
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 $9,450,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 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
$58,600,000 of operating income that was earned in the current
year.
units
6. Determine the maximum operating income
possible with the expanded plant.
$
7. If the proposal is accepted and sales remain
at the current level, what will the operating income or loss be for
the following year?
$
8. Based on the data given, would you recommend accepting the proposal?
- In favor of the proposal because of the reduction in break-even point.
- In favor of the proposal because of the possibility of increasing income from operations.
- In favor of the proposal because of the increase in break-even point.
- Reject the proposal because if future sales remain at the current level, the income from operations will increase.
- Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
Choose the correct answer.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $188 per unit during the current year. Its
income statement is as follows:
Sales $188,000,000
Cost of goods sold
(98,000,000)
Gross profit
$90,000,000
Expenses:
Selling expenses $14,000,000
Administrative expenses 17,800,000
Total expenses
(31,800,000)
Operating income
$58,200,000
The division of costs between variable and...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under
Present and Proposed Conditions
Portmann Company,
operating at full capacity, sold 1,000,000 units at a price of $188
per unit during the current year. Its income statement is as
follows:
Sales
$188,000,000
Cost of goods sold
(100,000,000)
Gross profit
$88,000,000
Expenses:
Selling expenses
$16,000,000
Administrative
expenses
12,000,000
Total expenses
(28,000,000)
Operating income
$60,000,000
The division of costs
between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $186 per unit during the current year. Its
income statement is as follows:
Sales
$186,000,000
Cost of goods sold
(100,000,000)
Gross profit
$86,000,000
Expenses:
Selling expenses
$16,000,000
Administrative expenses
8,000,000
Total expenses
(24,000,000)
Operating income
$62,000,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $186 per unit during the current year. Its
income statement is as follows:
Sales
$186,000,000
Cost of goods sold
(100,000,000)
Gross profit
$86,000,000
Expenses:
Selling expenses
$16,000,000
Administrative expenses
8,000,000
Total expenses
(24,000,000)
Operating income
$62,000,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $187 per unit during the current year. Its
income statement is as follows:
Sales
$187,000,000
Cost of goods sold
(98,000,000)
Gross profit
$89,000,000
Expenses:
Selling expenses
$16,000,000
Administrative expenses
12,800,000
Total expenses
(28,800,000)
Operating income
$60,200,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under
Present and Proposed Conditions
Portmann Company,
operating at full capacity, sold 1,000,000 units at a price of $188
per unit during the current year. Its income statement is as
follows:
Sales
$188,000,000
Cost of goods sold
(100,000,000)
Gross profit
$88,000,000
Expenses:
Selling expenses
$16,000,000
Administrative
expenses
12,000,000
Total expenses
(28,000,000)
Operating income
$60,000,000
The division of costs
between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $187 per unit during the current year. Its
income statement is as follows:
Sales
$187,000,000
Cost of goods sold
(98,000,000)
Gross profit
$89,000,000
Expenses:
Selling expenses
$14,000,000
Administrative expenses
15,800,000
Total expenses
(29,800,000)
Operating income
$59,200,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $186 per unit during the current year. Its
income statement is as follows:
Sales
$186,000,000
Cost of goods sold
(101,000,000)
Gross profit
$85,000,000
Expenses:
Selling expenses
$15,000,000
Administrative expenses
8,100,000
Total expenses
(23,100,000)
Operating income
$61,900,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
Break-Even Sales Under Present and Proposed Conditions Portmann
Company, operating at full capacity, sold 1,000,000 units at a
price of $190 per unit during the current year. Its income
statement is as follows: Sales $190,000,000 Cost of goods sold
(101,000,000) Gross profit $89,000,000 Expenses: Selling expenses
$14,000,000 Administrative expenses 17,600,000 Total expenses
(31,600,000) Operating income $57,400,000 The division of costs
between variable and fixed is as follows: Variable Fixed Cost of
goods sold 70% 30% Selling expenses 75% 25% Administrative...
reak-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
reak-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000
units at a price of $188 per unit during the current year. Its
income statement is as follows:
Sales
$188,000,000
Cost of goods sold
(98,000,000)
Gross profit
$90,000,000
Expenses:
Selling expenses
$16,000,000
Administrative expenses
14,800,000
Total expenses
(30,800,000)
Operating income
$59,200,000
The division of costs between variable and fixed is as
follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative...
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