Break-Even Sales Under Present and Proposed Conditions

Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $189 per unit during the current year. Its income statement is as follows:

Sales$189,000,000Cost of goods sold(100,000,000)Gross profit$89,000,000Expenses:Selling expenses$15,000,000Administrative expenses15,500,000Total expenses(30,500,000)Operating income$58,500,000

The division of costs betweenvariableandfixedis 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 $9,450,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and variable costs.