Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 $189,000,000
Cost of goods sold (101,000,000)
Gross profit $88,000,000
Expenses:
Selling expenses $14,000,000
Administrative expenses 15,600,000
Total expenses (29,600,000)
Operating income $58,400,000

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 $11,340,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 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
Total fixed costs

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

Unit variable cost
Unit contribution margin

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

4. Compute the break-even sales (units) under the proposed program for the following year.

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $58,400,000 of operating income that was earned in the current year.

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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Financial & Managerial Accounting The Financial Chapters

Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura

4th Edition

0133255573, 978-0133255577

More Books

Students also viewed these Accounting questions

Question

What are the APPROACHES TO HRM?

Answered: 1 week ago

Question

2. To store it and

Answered: 1 week ago