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:

Line Item Description Amount Amount

Sales $$189,000,000$

Cost of goods sold $(101,000,000)$

Gross profit $$88,000,000$

Expenses:

Selling expenses $$15,000,000$

Administrative expenses $14,100,000$

Total expenses $(29,100,000)$

Operating income $$58,900,000$

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

Line Item Description 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 $$11,340,000$ in yearly sales. The expansion will increase fixed costs by $$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 fill in the blank $1$ of $2$$

Total fixed costs fill in the blank $2$ of $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 $1$ of $2$$

Unit contribution margin fill in the blank $2$ of $2$$

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

fill in the blank $1$ of $1$

units

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

fill in the blank $1$ of $1$

units

$5.$ Determine the amount of sales $($units$)$ that would be necessary under the proposed program to realize the $$58,900,000$ of operating income that was earned in the current year.

fill in the blank $1$ of $1$

units

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

fill in the blank $1$ of $1$$

$7.$ 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 $1$ of $2$$

fill in the blank $2$ of $2$

$8.$ Based on the data given, would you recommend accepting the proposal?

a$.$ In favor of the proposal because of the reduction in break$-$even point.

b$.$ In favor of the proposal because of the possibility of increasing income from operations.

c$.$ In favor of the proposal because of the increase in break$-$even point.

d$.$ Reject the proposal because if future sales remain at the current level, the income from operations will increase.

e$.$ 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.Expunsien:

Requirted:

Total vairiable costs :

Total fixind costs &

Lenit v$$riable oust:

Lhit contr$$tion mar$$in :

Compute the treak$-$evven sales $($usils$)$ for the current year.

unis.

units

units

Dotermine the maximuth eporraticy income possible with the expandod plant.

$

a$.$ In faver of the proposal betiuse of the reduation in break$-$irv$$n poist.

e In firvut of the propotal bocauke of the increarev in treak$-$even point.