Break-Even Sales Under Present and Proposed Conditions 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 (99,000,000)Gross profit $90,000,000 Expenses: Selling expenses$14,000,000 Administrative expenses18,400,000 Total expenses (32,400,000)Operating income $57,600,000 The division of costs between variable and fixed is as follows: VariableFixedCost of goods sold70% 30% Selling expenses75% 25% Administrative expenses50% 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 $4,500,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs$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.
Break-Even Sales Under Present and Proposed Conditions
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 (99,000,000)Gross profit $90,000,000 Expenses: Selling expenses$14,000,000 Administrative expenses18,400,000 Total expenses (32,400,000)Operating income $57,600,000
The division of costs between variable and fixed is as follows:
VariableFixedCost of goods sold70% 30% Selling expenses75% 25% Administrative expenses50% 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 $4,500,000 but will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs$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 $57,600,000 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
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