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 Cost of goods sold Gross profit Expenses: Selling expenses $16,000,000 Administrative expenses 12,000,000 $188,000,000 (100,000,000) $88,000,000 Total expenses Operating Income (28,000,000) $60,000,000 The division of costs between variable and fixed is as follows: Cost of goods sold Variable Fixed 70% 30% 75% 25% Selling expenses Administrative expenses 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 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 Total fixed costs 87,000,000 x 38,200,000 X 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin 87 X 100 V 3. Compute the break-even sales (units) for the current year. 382,000 X units 4. Compute the break-even sales (units) under the proposed program for the following year. 427,000 X units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $60,000,000 of operating Income that was earned in the current year. 1,045,000 X units 6. Determine the maximum operating income possible with the expended plant. 63,300,000 X 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? 57,300,000 X Income