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. It's income statement is as follows:

Sales $190,000,000

Cost of Goods sold (100,000,000)

Gross profit $90,000,000

Expenses:

Selling expenses $15,000,000

Administrative expenses 17,500,000

Total Expenses (32,500,000)

Operating income $57,500,000

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

Variable Fixed

Cost of goods sold 70% 30%

Selling expenses 75% 25%

Administrative expense 50% 50%

Management is considering a plant expansion program for the following year that will permit an increase of $11,400,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will not affect the relationship between sales and variable costs.

Questions:

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

Total variable costs $___________

Total fixed costs $___________

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

Unit variable cost $________

Unit contribution margin $_________

Compute the break even sales (units) for the current year

____________ units

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

___________ units

Determine the amount of sales (units) that would be necessary under the proposed program to realize the $57,500,000 of operating income that was earned in the current year.

___________ units

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