Question
Break-even sales under present and proposed conditions Portman Company, operating at full capacity, sold 1,000,000 units at a price of $187 per unit during the
Break-even sales under present and proposed conditions
Portman Company, operating at full capacity, sold 1,000,000 units at a price of $187 per unit during the current year. Its income statement is as follows:
Line Item Description | Amount | Amount |
---|---|---|
Sales | $187,000,000 | |
Cost of goods sold | (101,000,000) | |
Gross profit | $86,000,000 | |
Expenses: | ||
Selling expenses | $14,000,000 | |
Administrative expenses | 11,600,000 | |
Total expenses | (25,600,000) | |
Operating income | $60,400,000 |
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 $11,220,000 in yearly sales. The expansion will increase fixed costs by $4,000,000 but will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs fill in the blank 1 of 2$ 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 $60,400,000 of operating income that was earned in the current year. fill in the blank 1 of 1 units
6. Determine the maximum operating income possible with the expanded plant. fill in the blank 1 of 1$
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$
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