Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $15.000.000 Administrative expenses 14,700,000 Total expenses Selling expenses $190,000,000 (102,000,000) $88,000,000 Operating income The division of costs between variable and fixed is as follows: Variable Fixed 70% 75% (29,700,000) $58,300,000 Cost of goods sold Selling expenses Administrative expenses Management is considering a plant expansion program for the following year that will permit an increase of $11,400,000 in yearly sales. The expansion will increase fixed costs by $4,000,000 but will not affect the relationship between sales and variable costs. Required: 50% 30% 25% 50% 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 90,000,000 V $41,700,000 ✓ Total fixed costs 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 90 ✓ Unit contribution margin 100 ✓ 3. Compute the break-even sales (units) for the current year. 417,000 units 4. Compute the break-even sales (units) under the proposed program for the following year. 457,000 units. 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $58,300,000 of operating income that was earned in the current year. 1,040,000 units 6. Determine the maximum operating income possible with the expanded plant. 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? Income
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $15.000.000 Administrative expenses 14,700,000 Total expenses Selling expenses $190,000,000 (102,000,000) $88,000,000 Operating income The division of costs between variable and fixed is as follows: Variable Fixed 70% 75% (29,700,000) $58,300,000 Cost of goods sold Selling expenses Administrative expenses Management is considering a plant expansion program for the following year that will permit an increase of $11,400,000 in yearly sales. The expansion will increase fixed costs by $4,000,000 but will not affect the relationship between sales and variable costs. Required: 50% 30% 25% 50% 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 90,000,000 V $41,700,000 ✓ Total fixed costs 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 90 ✓ Unit contribution margin 100 ✓ 3. Compute the break-even sales (units) for the current year. 417,000 units 4. Compute the break-even sales (units) under the proposed program for the following year. 457,000 units. 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $58,300,000 of operating income that was earned in the current year. 1,040,000 units 6. Determine the maximum operating income possible with the expanded plant. 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? Income
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hi, I've been struggling for hours on questions 6 and 7.
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 $190 per unit during the current year. Its income statement is as follows:
Sales
$190,000,000
Cost of goods sold
(102,000,000)
Gross profit
$88,000,000
Expenses:
Selling expenses
$15,000,000
Administrative expenses 14,700,000
Total expenses
Operating income
The division of costs between variable and fixed is as follows:
Variable
Fixed
30%
Cost of goods sold
Selling expenses
70%
75%
(29,700,000)
$58,300,000
50%
25%
Administrative
expenses
Management considering a plant expansion program for the following year that will permit an increase of $11,400,000 in yearly sales. The expansion will increase fixed costs by $4,000,000 but will not affect the relationship between sales and variable costs.
Required:
50%
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs
90,000,000 ✓
Total fixed costs
41,700,000 ✓
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
90 ✓
Unit contribution margin $
100 ✓
3. Compute the break-even sales (units) for the current year.
417,000 ✓ units.
4. Compute the break-even sales (units) under the proposed program for the following year.
457,000 ✓ units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $58,300,000 of operating income that was earned in the current year.
1,040,000 ✓ units
6. Determine the maximum operating income possible with the expanded plant.
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?
✓
Income
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