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: Line Item Description Amount Amount 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: Line Item Description 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 $9,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs. 4. Compute the break-even sales (units) under the proposed program for the following year. 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. 6. Determine the maximum operating income possible with the expanded plant.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

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:

Line Item Description	Amount	Amount
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:

Line Item Description	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 $9,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs.

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

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.

6. Determine the maximum operating income possible with the expanded plant.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions