FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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$14,000,000  Administrative expenses18,400,000  Total expenses  (32,400,000)Operating income  $57,600,000

The division of costs between variable and fixed is as follows:

 VariableFixedCost of goods sold70% 30% Selling expenses75% 25% Administrative expenses50% 50% 

Management is considering a plant expansion program for the following year that will permit an increase of $11,340,000 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:

1. Determine the total variable costs and the total fixed costs for the current year.

Total variable costs$fill in the blank 1

Total fixed costs$fill in the blank 2

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

Unit variable cost$fill in the blank 3

Unit contribution margin$fill in the blank 4

3. Compute the break-even sales (units) for the current year.

fill in the blank 5

 

 units

4. Compute the break-even sales (units) under the proposed program for the following year.

fill in the blank 6

 

 units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $57,600,000 of operating income that was earned in the current year.

fill in the blank 7

 

 units

6. Determine the maximum operating income possible with the expanded plant.

$fill in the blank 8

 

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?

$fill in the blank 9

 

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