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 Cost of goods sold Gross profit Expenses: $14,000,000 Administrative expenses 12,400,000 Total expenses Selling expenses Cost of goods sold Selling expenses Operating income The division of costs between variable and fixed is as follows: Variable Fixed 30% 25% 70% 75% Total fixed costs $186,000,000 (99,000,000) $87,000,000 Administrative expenses Management is considering a plant expansion program for the following year that will permit an increase of $11,160,000 in yearly sales. The expansion will increase fixed costs bv $4.500.000 but will not affect the relationship between sales and variable costs. Required: (26,400,000) $60,600,000 50% 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 86,000,000 units 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. units 50% 86 100 4. Compute the break-even sales (units) under the proposed program for the following year. 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 wa earned in 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 $186 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold Gross profit Expenses: $14,000,000 Administrative expenses 12,400,000 Total expenses Selling expenses Cost of goods sold Selling expenses Operating income The division of costs between variable and fixed is as follows: Variable Fixed 30% 25% 70% 75% Total fixed costs $186,000,000 (99,000,000) $87,000,000 Administrative expenses Management is considering a plant expansion program for the following year that will permit an increase of $11,160,000 in yearly sales. The expansion will increase fixed costs bv $4.500.000 but will not affect the relationship between sales and variable costs. Required: (26,400,000) $60,600,000 50% 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 86,000,000 units 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. units 50% 86 100 4. Compute the break-even sales (units) under the proposed program for the following year. 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 wa earned in the current year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 $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:
$14,000,000
Administrative expenses 12,400,000
Total expenses
Selling expenses
Operating income
The division of costs between variable and fixed is as follows:
Variable
Fixed
30%
25%
Cost of goods sold
Selling expenses
Administrative
expenses
70%
75%
(26,400,000)
$60,600,000
50%
Total fixed costs
Management is considering a plant expansion program for the following year that will permit an increase of $11,160,000 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
86,000,000
50%
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
Unit contribution margin
86
100
3. Compute the break-even sales (units) for the current year.
units
4. Compute the break-even sales (units) under the proposed program for the following year.
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 wa
earned in the current year.
units
6. Determine the maximum operating income possible with the expanded plant.
$
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