BreakEven 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 $150,000,000 Cost of goods sold (100,000,000) Gross profit $88,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 15,000,000 Total expenses (29,000,000) Operating income $59,000,000 ' The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative 50% 50% expenses Management is consudering 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 $4,500,000 but will not affect the relationship between sales and variable costs. 1. Determine the total variable costs and the total xed costs for the current year. Total variable costs '- 88,000,000 w/ Total fixed costs '- 100,000,000 X 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost if Unit contribution margin J 3. Compute the break-even sales (units) for the current year. 380,000 X units 4. Compute the break-even sales (units) under the proposed program for the following year. 420,000 X units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,000,000 of operating income that was earned in the current year. 6. Determine the maximum operating income possible with the expanded plant. i: 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? $ 58,000,000 X Income v J 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in breakreven paint