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(99,000,000)Gross profit$90,000,000Expenses:Selling expenses$14,000,000Administrative expenses18,400,000Total expenses(32,400,000)Operating income$57,600,000

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 $11,340,000 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$fill in the blank 1

Total fixed costs$fill in the blank 2

2.Determine (a) the unit variable cost and (b) theunit contribution marginfor the current year.

Unit variable cost$fill in the blank 3

Unit contribution margin$fill in the blank 4

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

fill in the blank 5

units

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

fill in the blank 6

units

5.Determine the amount of sales (units) that would be necessary under the proposed program to realize the $57,600,000 of operating income that was earned in the current year.

fill in the blank 7

units

6.Determine the maximum operating income possible with the expanded plant.

$fill in the blank 8

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?

$fill in the blank 9