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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 $188 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $188,000,000 (98,000,000) $90,000,000 Selling expenses $16,000,000 Administrative expenses 14,800,000 Total expenses Operating income (30,800,000) $59,200,000 The division of costs between variable and fixed is as follows: Cost of goods sold Variable Fixed 70% 30% 75% 25% Selling expenses Administrative expenses 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 88,000,000 Total fixed costs 40,800,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin 88 100 3. Compute the break-even sales (units) for the current year. 408,000 units 4. Compute the break-even sales (units) under the proposed program for the following year. 453,000 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,200,000 of operating income that was earned in the current year. 1,050,300 X units 6. Determine the maximum operating income possible with the expanded plant. 60,700,000 ✔ 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? 54,640,000 X Income

Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $188 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $188,000,000 (98,000,000) $90,000,000 Selling expenses $16,000,000 Administrative expenses 14,800,000 Total expenses Operating income (30,800,000) $59,200,000 The division of costs between variable and fixed is as follows: Cost of goods sold Variable Fixed 70% 30% 75% 25% Selling expenses Administrative expenses 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 88,000,000 Total fixed costs 40,800,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin 88 100 3. Compute the break-even sales (units) for the current year. 408,000 units 4. Compute the break-even sales (units) under the proposed program for the following year. 453,000 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,200,000 of operating income that was earned in the current year. 1,050,300 X units 6. Determine the maximum operating income possible with the expanded plant. 60,700,000 ✔ 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? 54,640,000 X Income

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 $188 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $188,000,000 (98,000,000) $90,000,000 Selling expenses $16,000,000 Administrative expenses 14,800,000 Total expenses Operating income (30,800,000) $59,200,000 The division of costs between variable and fixed is as follows: Cost of goods sold Variable Fixed 70% 30% 75% 25% Selling expenses Administrative expenses 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 88,000,000 Total fixed costs 40,800,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin 88 100 3. Compute the break-even sales (units) for the current year. 408,000 units 4. Compute the break-even sales (units) under the proposed program for the following year. 453,000 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,200,000 of operating income that was earned in the current year. 1,050,300 X units 6. Determine the maximum operating income possible with the expanded plant. 60,700,000 ✔ 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? 54,640,000 X Income
Transcribed Image Text:Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $188 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $188,000,000 (98,000,000) $90,000,000 Selling expenses $16,000,000 Administrative expenses 14,800,000 Total expenses Operating income (30,800,000) $59,200,000 The division of costs between variable and fixed is as follows: Cost of goods sold Variable Fixed 70% 30% 75% 25% Selling expenses Administrative expenses 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 88,000,000 Total fixed costs 40,800,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost Unit contribution margin 88 100 3. Compute the break-even sales (units) for the current year. 408,000 units 4. Compute the break-even sales (units) under the proposed program for the following year. 453,000 units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,200,000 of operating income that was earned in the current year. 1,050,300 X units 6. Determine the maximum operating income possible with the expanded plant. 60,700,000 ✔ 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? 54,640,000 X Income
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