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			$190,000,000
Cost of goods sold			(98,000,000)
Gross profit			$92,000,000
Expenses:
Selling expenses	$14,000,000
Administrative expenses	21,800,000
Total expenses			(35,800,000)
Operating income			$56,200,000

The division of costs between variable and fixed is as follows:

	Variable	Fixed
Cost of goods sold	70%		30%
Selling expenses	75%		25%
Administrative expenses	50%		50%

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 $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	90,000,000
Total fixed costs	43,800,000

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

Unit variable cost	90
Unit contribution margin	100

3. Compute the break-even sales (units) for the current year. 438,000 units

4. Compute 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 $56,200,000 of operating income that was earned in the current year. 1,035,000 units

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

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

Income