Break Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $186 per unit during the current year, its income statement is as follows: Sales $156,000,000 Cost of goods sold (102,000,000) Gross profit $84,000,000 Expenses Selling expenses $14,000,000 Administrative expenses B.200.000 Total expenses (22.200,000) Operating Income $61,800,000 The division of costs between variables and fixed is as follows: Variable Fixed Cost of goods sold 704 3044 Selling 7546 2596 rate 50% 50 anagement is considering a plantarusion program for the following year that will permit an increase of $13.020,000 in vatty sales. The expansion will increase fixed costs by 34.000.000 but will not affect the relationship between als and variable costs Required: 1. Durmine the total variable costs and the total foxed costs for the current year 1. Determine the total variable costs and the total fled costs for the current year Total variable costs 36,000,000 Totalbred os 38,200,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year Unit Variable cost Unit contribution margin 1. 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 ye. units 3. Determine the amount of sales (units that would be necessary under the proposed program to the $61,100,000 of operating income that was eated in the current ar 6. Determine the maximum operating income possible with the expanded plant %. the proposal is accepted and sales remain at the current level what will the operating income or loss be for the following year Income med on the data over would you recommend accepting the proposal? favor of the proposal because of the reduction in break even point 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. dreject the proposal because if future sales remain at the current level, the income from operations will increase S. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $1,800,000 of operating income that was earned in the current y units 6. Determine the maximum operating Income possible with the expanded plant. 1. If the proposal is accepted and sales remain at the current bevel, what will the operating income or lose be for the following year? Income 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 it 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
