Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales $190,000,000 Cost of goods sold (99,000,000) Gross profit $91,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 20,400,000 Total expenses (34,400,000) Operating income $56,600,000 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 $13,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but wi the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 90,000,000 v Total fixed costs 43,400,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 90 V Unit contribution margin 100 v 3. Compute the break-even sales (units) for the current year. 434,000 V units
Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales $190,000,000 Cost of goods sold (99,000,000) Gross profit $91,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 20,400,000 Total expenses (34,400,000) Operating income $56,600,000 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 $13,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but wi the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 90,000,000 v Total fixed costs 43,400,000 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 90 V Unit contribution margin 100 v 3. Compute the break-even sales (units) for the current year. 434,000 V units
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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(12) CVP; Need help on part 6 and 7
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 $190 per unit during the current year. Its income statement is as follows:
Sales
$190,000,000
Cost of goods sold
(99,000,000)
Gross profit
$91,000,000
Expenses:
Selling expenses
$14,000,000
Administrative expenses 20,400,000
Total expenses
(34,400,000)
Operating income
$56,600,000
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 $13,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect
the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs
90,000,000
Total fixed costs
43,400,000
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
$
90
Unit contribution margin
$4
100 V
3. Compute the break-even sales (units) for the current year.
434,000
units
Transcribed Image Text:4. Compute the break-even sales (units) under the proposed program for the following year.
484,000
units
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $56,600,000 of operating income that was earned in the current year.
1,050,000 v units
6. Determine the maximum operating income possible with the expanded plant.
$4
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
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