Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $189 per unit during the current year. Its income statement is as follows: Sales $189,000,000 Cost of goods sold (100,000,000) Gross profit $89,000,000 Expenses: Selling expenses $15,000,000 Administrative expenses 15,500,000 Total expenses (30,500,000) Operating income $58,500,000 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 $9,450,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will not affect the relationship between sales and variable costs. Determine the total variable costs and the total fixed costs for the current year. Total variable costs $ Total fixed costs $ 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 $58,500,000 of operating income that was earned in the current year. ____________ units
Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $189 per unit during the current year. Its income statement is as follows:
| Sales | $189,000,000 | ||
| Cost of goods sold | (100,000,000) | ||
| Gross profit | $89,000,000 | ||
| Expenses: | |||
| Selling expenses | $15,000,000 | ||
| Administrative expenses | 15,500,000 | ||
| Total expenses | (30,500,000) | ||
| Operating income | $58,500,000 |
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 $9,450,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will not affect the relationship between sales and variable costs.
Determine the total variable costs and the total fixed costs for the current year.
| Total variable costs | $ |
| Total fixed costs | $ |
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 $58,500,000 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?
$____________
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