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Management is considering a plant expansion program for the following year that will permit an increase of $13,090,000 in yearly sales. The expansion will increase
Management is considering a plant expansion program for the following year that will permit an increase of $13,090,000 in yearly sales. The expansion will increase fixed costs by $3,500,000 but will not affect the relationship between sales and variable costs. 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: Sales $187,000,000 Cost of goods sold (101,000,000) Gross profit $86,000,000 Expenses: Selling expenses $15,000,000 Administrative expenses 10,100,000 Total expenses (25,100,000) Operating Income $60,900,000 The division of costs between vanable and fed is as follows: Variable Fixed 3096 Cost of goods sold 70% 75% 25% Selling expenses Administrative 5095 50% expenses Hequired Total Toledo 17,000,000 39.100.000 Unitat contribution 100 3. Computer 391.000 4. Comes the ground 5. Determine the amount of sales (units) that would be necessary under the proud program to the $60.000,000 of operating income that was earned in the current yet 960,817 X units 6. Determine the maximum operating income possible with the expanded plant. 71,490,000 X 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? 58,400,000 x 8. Based on the data given, would you recommend accepting the proposal a. 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 income from operations c. In favor of the proposal because of the increase in break-even point d. Reject the proposal because if future sales remain at the current level, the income from operations will increase e. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales Choose the correct answer 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: Sales $187,000,000 Cost of goods sold (101,000,000) Gross profit $36,000,000 Expenses: Selling expenses $15,000,000 Administrative expenses 10.100,000 Total expenses (25,100,000) Operating Income 360,900,000 The division of costs between variable and feed is as follows: Variable Fixed 70% 30% Cost of goods sold Selling expenses Administrative 75% 25% 50% 50% expenses 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the 560,900,000 of operating income that was earned in the current year. 960,017 X units 6. Determine the maximum operating income possible with the expanded plant, 71,490,000 x 7. If the proposal is accepted and sales remain at the current level what will the operating income or less be for the following year? 50,400,000 X I. Based on the data given, would you recommend accepting the proposal a 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 income from operations. c. In favor of the proposal because of the increase in break-even point, d. 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 Choose the correct
Management is considering a plant expansion program for the following year that will permit an increase of $13,090,000 in yearly sales. The expansion will increase fixed costs by $3,500,000 but will not affect the relationship between sales and variable costs.
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