FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text: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
(102,000,000)
Gross profit
$88,000,000
Expenses:
Selling expenses
$15,000,000
Administrative expenses 14,700,000
Total expenses
(29,700,000)
Operating income
$58,300,000
The division of costs between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative
50%
50%
expenses
Management is considering a plant expansion program for the following year that will permit an increase of $13,300,000 in yearly sales. The expansion will increase fixed
costs by $4,500,000 but will not affect the relationship between sales and variable costs.
Required:
Transcribed Image Text: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
$4
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 $58,300,000 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?
$
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