Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $186 per unit during the current year. Its income statement is as follows: Sales     $186,000,000  Cost of goods sold     (99,000,000) Gross profit     $87,000,000  Expenses:       Selling expenses $

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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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 $186 per unit during the current year. Its income statement is as follows:

Sales     $186,000,000 
Cost of goods sold     (99,000,000)
Gross profit     $87,000,000 
Expenses:      
Selling expenses $14,000,000    
Administrative expenses 12,400,000    
Total expenses     (26,400,000)
Operating income     $60,600,000

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 $13,020,000 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 $fill in the blank 1
Total fixed costs $fill in the blank 2

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

Unit variable cost $fill in the blank 3
Unit contribution margin $fill in the blank 4

3.  Compute the break-even sales (units) for the current year.
fill in the blank 5 units

4.  Compute the break-even sales (units) under the proposed program for the following year.
fill in the blank 6 units

5.  Determine the amount of sales (units) that would be necessary under the proposed program to realize the $60,600,000 of operating income that was earned in the current year.
fill in the blank 7 units

6.  Determine the maximum operating income possible with the expanded plant.
$fill in the blank 8

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

 

 

8.  Based on the data given, would you recommend accepting the proposal?

      1. In favor of the proposal because of the reduction in break-even point.
      2. In favor of the proposal because of the possibility of increasing income from operations.
      3. In favor of the proposal because of the increase in break-even point.
      4. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
      5. 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.

Need the answer for problem 6 and 7. 
 

 

Expert Solution
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"Since you have posted a question with multiple sub-parts, we will solve the subparts asked by you. To get the remaining sub-part solved please repost the complete question and mention the sub-parts to be solved.

Operating income is an accounting metric that captures the profit generated by a company's operations after operating costs have been subtracted. Since it does not include taxes or other specific elements that could have an impact on profit or net income, operational income analysis could be beneficial to investors.  A company that is producing an increasing quantity of operational income is viewed favorably since management is earning more revenue while controlling expenses, production costs, and overhead.

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