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Break-even sales under present and proposed conditions. Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $187 per unit during the
Break-even sales under present and proposed conditions. Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $187 per unit during the current year. Its income statement is as follows: uperating income The division of costs between variable and fixed is as follows: Management is considering a plant expansion program for the following year that wiff permit an increase of $9,350,000 in yearfy saies. The expansion will increase fixed costs by $3,500,000 but wili not affect the relationship between sales and variable costs. 1. Determine the total variable costs and the total fixed costs for the current year Total variable costs : Total fixed costs 5 2. Determine (a) the unit variable cost and (b) the unit contribution marpin for the current year. Unit variable cost 5 x Unit contribution margin 5 3. Compute the break-even sales (units) for the current year. units 4. Comoute 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 559,200,000 of operating income that was earned in the current vear. x units 6. Determine the maximum operating income possible with the expanded plant. x 7. If the prooosal is accepted and soles remain at the current level, what will the offerating income or less be for the following year? x 8. Bated on the data given, would you recommend accepting the proposal? 8. In favor of the propotal because of the reduction in break-even point. b. In favor of the proposal because of the poswbility of increasing income frem operations. c. In favor of the proposal because of the increase in break-even point: d. Reject the proposai because if future soles remain at the current level, the income from operations will increase
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