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 | (101,000,000) | ||
| Gross profit | $85,000,000 | ||
| Expenses: | |||
| Selling expenses | $15,000,000 | ||
| Administrative expenses | 8,100,000 | ||
| Total expenses | (23,100,000) | ||
| Operating income | $61,900,000 |
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 $11,160,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
| Total variable costs | $ |
| Total fixed costs | $ |
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
| Unit variable cost | $ |
| Unit contribution margin | $ |
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 $61,900,000 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 income or loss be for the following year?
$
8. Based on the data given, would you recommend accepting the proposal?
In favor of the proposal because of the reduction in break-even point.
In favor of the proposal because of the possibility of increasing income from operations.
In favor of the proposal because of the increase in break-even point.
Reject the proposal because if future sales remain at the current level, the income from operations will increase.
Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
Choose the correct answer.
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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 $186 per unit during the current year. Its income statement is as follows: Sales $186,000,000 Cost of goods sold
Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units...
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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 $187 per unit during the current year. Its income statement is as follows Sales $187,000,000 Cost of goods sold (102,000,000) Gross profit $85,000,000 Expenses Selling expenses $16,000,000 Administrative expenses 7,200,000 Total expenses (23,200.000) Operating income $61,800,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 148,400 units at a price of $126 per unit during the current year. Its income statement is as follows: Sales $18,698,400 6,636,000 Cost of goods sold Gross profit $12,062,400 Expenses: Selling expenses Administrative expenses $3,318,000 1,974,000 Total expenses 5,292,000 Income from operations $6,770,400 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 4096 Selling expenses 50% 50%...
Break-Even Sales Under Present and Proposed Conditions Battonkill Company, operating at full capacity, sold 101,400 units at a price of $51 per unit during the current year. Its income statement for the current year is as follows: Sales Cost of goods solod Gross profit Expenses: $5,171,400 1,836,000 $3,335,400 Selling expenses $918,000 Administrative expenses 544,000 Total expenses 1,462,000 Income from operations $1,873,400 The division of costs between fixed and variable is as follows Fixed Variable Cost of goods sold Selling expenses...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capaoity, sold 172,900 units at a price of $75 per unit during the current year. Its income statement ise s follows: $12,967,500 Sales Cost of goods sold 4.600,000 Gross profit $8.367,500 Expenses Selling expenses 2,300,000 expenses 1,375,000 Tatal exnenses 3,675,000 $4,692,500 Income from operations The division of costs between variable and foxed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50% Administrative...
Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 150,400 units at a price of $81 per unit during the current year. Its income statement is as follows: Sales $12,182,400 4,320,000 Cost of goods sold Gross profit $7,862,400 Expenses: Selling expenses $2,160,000 Administrative expenses 1,296,000 Total expenses 3,456,000 Income from operations $4,406,400 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50%...
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