Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $16,000,000 Administrative expenses 16,000,000 Total expenses Selling expenses (32,000,000) Operating income $58,000,000 The division of costs between variable and fixed is as follows: Fixed Cost of goods sold Selling expenses Administrative Variable Donniend. 70% 75% $190,000,000 (100,000,000) $90,000,000 50% 30% 25% 50% expenses Management is considering a plant expansion program for the following year that will permit an increase of $13,300,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and variable costs.

Break. Even Sives Under Present and Proposed Condibons Portmann Company, operating at full capadty, sold 1,000,000 units at a price of $190 per unit during the current year, its income statement is as follows: The division of costs between variatile and fixed is as follows: Management ir considering a plant expansion program for the following vear that will permit an increase of 313,700,000 in yearfy sales, The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and yariable costs: 1. Determine the total variable costs and the total fixed costs for the current vear. 2. Determine (o) the unit variable cost and (b) the unit contribution margin for the current year. 3. Compute the break-even sales (units) for the current year. x units 4. Compute the break-ven sales (units) under the proposed program for the following wear. x units 5. Determine the smount of tales (units) that would be necessary under the proposed program to fealize the $58,000,000 of operating income that was earned in the current year. x units 6. Determine the matraturn operating income possbibe with the expanded plant. 1 7. "W the proposal is accopted and fales remain at the current fevel, what will the operating income of loss be for the following year? x 6. Determine the maximum operating income posatle with the expanded plant. 1 7. If the proposal ls accepted and sales remain at the current level, what will the operating income or lons be for the following vear? 3 8. Based on the data given, would you recommend accepting the proponal? 2. In favor of the proposal because of the reduction in break even point. b. In favor of the proposal because of the possibility of increasing incoene from operations. c. In favor of the proposal because of the increase in breakeven point. d. Refect the proposat because if future totes remain at the current tevet, the fincomie from oberations will increase. 6. Relect the proposal because the sales necessary to maintain the current income from operations would be below the current vear sales. Choose the correct answer: rithes: 1. Multaly the percentages for fixed and yariable coits by each cost. 7. a. Divide the cotal varibile costr toy number of units. 2. b. Sales pake per unat minus variable costs per unit equals contribution margin per unit. 3. Fixed costs divided by unit contribution margin equals break-even point. 4. Fixed costs under the proposed prooram fivided br contribution marain equals new break-even point