Break-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:Line Item DescriptionAmountAmountSales $188,000,000 Cost of goods sold (100,000,000)Gross profit $88,000,000 Expenses: Selling expenses$16,000,000 Administrative expenses12,000,000 Total expenses (28,000,000)Operating income $60,000,000The division of costs between variable and fixed is as follows:Line Item DescriptionVariableFixedCost 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 $5,000,000 but will not affect the relationship between sales and variable costs.5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $60,000,000 of operating income that was earned in the current year.6. Determine the maximum operating income possible with the expanded plant.

The operating capacity of a business is the total production that is possible within a given frame…

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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:

Line Item Description	Amount	Amount
Sales		$188,000,000
Cost of goods sold		(100,000,000)
Gross profit		$88,000,000
Expenses:
Selling expenses	$16,000,000
Administrative expenses	12,000,000
Total expenses		(28,000,000)
Operating income		$60,000,000

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 $11,280,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs.

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $60,000,000 of operating income that was earned in the current year.

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

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