Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at
Question:
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(102,000,000)Gross profit$87,000,000Expenses:Selling expenses$15,000,000Administrative expenses12,700,000Total expenses(27,700,000)Operating income$59,300,000
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 $3,500,000 but will not affect the relationship between sales and variable costs.
Required:
1.Determine the total variable costs and the total fixed costs for the current year.
Total variable costs$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 $59,300,000 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
8.Based on the data given, would you recommend accepting the proposal?
- In favor of the proposal because of the reduction in break-even point.
- In favor of the proposal because of the possibility of increasing income from operations.
- In favor of the proposal because of the increase in break-even point.
- Reject the proposal because if future sales remain at the current level, the income from operations will increase.
- Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
Accounting Information Systems
ISBN: 9780132871938
11th Edition
Authors: George H. Bodnar, William S. Hopwood