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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 expenses 50% 50%

Management is considering a plant expansion program for the following year that will permit an increase of $9,400,000 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 $59,200,000 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?
$ Income

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