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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 $188 per unit during the

Break-Even Sales Under Present and Proposed Conditions

Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $188 per unit during the current year. Its income statement is as follows:

Sales $188,000,000
Cost of goods sold (100,000,000)
Gross profit $88,000,000
Expenses:
Selling expenses $15,000,000
Administrative expenses 13,500,000
Total expenses (28,500,000)
Operating income $59,500,000

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

Variable Fixed
Cost of goods sold 70% 30%
Selling expenses 75% 25%
Administrative expenses 50% 50%

Management is considering a plant expansion program for the following year that will permit an increase of $9,400,000 in yearly sales. The expansion will increase fixed costs by $3,500,000 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 ______________
Total fixed costs ______________

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

Unit variable cost ______________
Unit contribution margin ______________

3. 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 year. _______________ units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,500,000 of operating income that was earned in the current year. ______________ units

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

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? _____________

Income

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