Reference no: EM133589260

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 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.

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. _____ 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? $_____

8. Based on the data given, would you recommend accepting the proposal?