Break-Even Sales Under Present and Proposed Conditions 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 (101,000,000) Gross profit $88,000,000 Expenses: Selling expenses $16,000,000 Administrative expenses 12,600,000 Total expenses (28,600,000) Operating income $59,400,000 The division of costs between Costs that vary in total dollar amount as the level of activity changes.variable and Costs that tend to remain the same in amount, regardless of variations in the level of activity.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 $13,230,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 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 The dollars available from each unit of sales to cover fixed costs and provide operating profits.unit contribution margin for the current year. Unit variable cost $ Unit contribution margin $ 3. Compute the break-even sales (units) for the current year.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 $59,400,000 of operating income that was earned in the current year.units 6. Determine the maximum operating income possible with the expanded plant.$ 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 Loss 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. a b c d e

Break-Even Sales Under Present and Proposed Conditions 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 (101,000,000) Gross profit $88,000,000 Expenses: Selling expenses $16,000,000 Administrative expenses 12,600,000 Total expenses (28,600,000) Operating income $59,400,000 The division of costs between Costs that vary in total dollar amount as the level of activity changes.variable and Costs that tend to remain the same in amount, regardless of variations in the level of activity.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 $13,230,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 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 The dollars available from each unit of sales to cover fixed costs and provide operating profits.unit contribution margin for the current year. Unit variable cost $ Unit contribution margin $ 3. Compute the break-even sales (units) for the current year.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 $59,400,000 of operating income that was earned in the current year.units 6. Determine the maximum operating income possible with the expanded plant.$ 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 Loss 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. a b c d e

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.2.5P

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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 $189 per unit during the current year. Its income statement is as follows:

Sales		$189,000,000
Cost of goods sold		(101,000,000)
Gross profit		$88,000,000
Expenses:
Selling expenses	$16,000,000
Administrative expenses	12,600,000
Total expenses		(28,600,000)
Operating income		$59,400,000

The division of costs between Costs that vary in total dollar amount as the level of activity changes.variable and Costs that tend to remain the same in amount, regardless of variations in the level of activity.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 $13,230,000 in yearly sales. The expansion will increase fixed costs by $4,500,000 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 The dollars available from each unit of sales to cover fixed costs and provide operating profits.unit contribution margin for the current year.

Unit variable cost	$
Unit contribution margin	$

3. Compute the break-even sales (units) for the current year.
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 $59,400,000 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
Loss

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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