50.1K

Verified Solution

Link Copied!

2. b. $100 Obj. 2,3 PR 6-2A 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... (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: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 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. Instructions 5096 1. Determine the total variable costs and the total fixed costs for the current year. 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. 3. Compute the break-even sales (units) for the current year. 4. Compute the break-even sales (units) under the proposed program for the following year. 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, 7. If the proposal is accepted and sales remain at the current level, what will the operating in come or loss be for the following year? Based on the data given, would you recommend accepting the proposal? Explain

Answer & Explanation Solved by verified expert

See Answer