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			100,000,000
Gross profit			$86,000,000
Expenses:
Selling expenses	$16,000,000
Administrative expenses	8,000,000
Total expenses			24,000,000
Operating income			$62,000,000
The division of costs betweenvariableandfixedis as follows:
	Variable	Fixed
Cost of goods sold	70%	70000000	30%	30,000,000
Selling expenses	75%	$12,000,000	25%	$4,000,000
Administrative expenses	50%	4000000	50%	4,000,000
		86000000		38,000,000
Management is considering a plant expansion program for the following year that will permit an increase of $13,020,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 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	$	86000000
Total fixed costs	$	38,000,000
2. Determine (a) the unit variable cost and (b) theunit contribution marginfor the current year.
Unit variable cost	$	86
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 $62,000,000 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