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 $186,000,000 Cost of goods sold (101,000,000)Gross profit $85,000,000 Expenses: Selling expenses$14,000,000 Administrative expenses9,600,000 Total expenses (23,600,000)Operating income $61,400,000

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

VariableFixedCost of goods sold70% 30% Selling expenses75% 25% Administrative expenses50% 50%

Management is considering a plant expansion program for the following year that will permit an increase of $9,300,000 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$86000000Total fixed costs$38600000

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

Unit variable cost86Unit contribution margin100

3. Compute the break-even sales (units) for the current year. $386000

4. Compute the break-even sales (units) under the proposed program for the following year. 416000

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $61,400,000 of operating income that was earned in the current year. 1030000

6. Determine the maximum operating income possible with the expanded plant. $fill in the blank 8