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need help with 5 and 7 please

need help with 5 and 7 please

FINANCIAL ACCOUNTING
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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need help with 5 and 7 please

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 (100,000,000) Gross profit $86,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 11,000,000 Total expenses (25,000,000) Operating income $61,000,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative 50% 50% 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 by $4,000,000 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.
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 (100,000,000) Gross profit $86,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 11,000,000 Total expenses (25,000,000) Operating income $61,000,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative 50% 50% 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 by $4,000,000 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.
Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 86,000,000 v Total fixed costs 39,000,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 86 Unit contribution margin 100 V 3. Compute the break-even sales (units) for the current year. 390,000 V 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 $61,000,000 of operating income that was earned in the current year. units 6. Determine the maximum operating income possible with the expanded plant. 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 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in break-even point. b. In favor of the proposal because of the possibility of increasing income from operations. c. In favor of the proposal because of the increase in break-even point.
Transcribed Image Text:Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 86,000,000 v Total fixed costs 39,000,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 86 Unit contribution margin 100 V 3. Compute the break-even sales (units) for the current year. 390,000 V 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 $61,000,000 of operating income that was earned in the current year. units 6. Determine the maximum operating income possible with the expanded plant. 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 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in break-even point. b. In favor of the proposal because of the possibility of increasing income from operations. c. In favor of the proposal because of the increase in break-even point.
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