eBook Show Me HowQuestion Content AreaBreak-Even Sales Under Present and Proposed ConditionsPortmann 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 $188,000,000 Cost of goods sold (99,000,000)Gross profit $89,000,000 Expenses: Selling expenses$15,000,000 Administrative expenses14,900,000 Total expenses (29,900,000)Operating income $59,100,000The 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 $11,280,000 in yearly sales. The expansion will increase fixed costs by $3,500,000 but will not affect the relationship between sales and variable costs. 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?

The objective of the question is to calculate the operating income or loss for the following year if…

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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		$188,000,000
Cost of goods sold		(99,000,000)
Gross profit		$89,000,000
Expenses:
Selling expenses	$15,000,000
Administrative expenses	14,900,000
Total expenses		(29,900,000)
Operating income		$59,100,000

The division of costs between variable and fixed is as follows:

	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 $11,280,000 in yearly sales. The expansion will increase fixed costs by $3,500,000 but will not affect the relationship between sales and variable costs. 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?

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