Answer:
<h3>Portmann Company</h3>1. Total variable costs = $89,000,000
Total fixed costs = $40,600,000
2. a Unit variable cost = $89
b. Unit contribution margin = $100
3. Break-even sales (units) = Fixed cost/Contribution margin per unit
= $40,600,000/$100
= 406,000 units
4. Break-even sales (units) = Fixed cost/Contribution margin per unit
= $45,100,000/$100
= 451,000 units
5. Break-even sales (units) to achieve target profit = (Fixed cost + Target Profit)/Contribution margin per unit
= ($45,100,000 + $59,400,000)/$100
= 1,045,000 units
6. Maximum operating income possible with the expanded plant is:
= $61,900,000
7. Operating income if the proposal is accepted and sales remain at the current level is:
= $54,900,000
Explanation:
a) Data and Calculations:
Sales volume during current year = 1,000,000
Sales price per unit during current year = $189
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
Variable Fixed
Cost of goods sold 70% 30%
Selling expenses 75% 25%
Administrative expenses 50% 50%
Total variable costs for the current year:
Variable
Cost of goods sold 70% * $101,000,000 = $70,700,000
Selling expenses 75% * $16,000,000 = 12,000,000
Administrative expenses 50% * $12,600,000 = 6,300,000
Total variable costs = $89,000,000
Variable unit cost = $89 ($89,000,000/1,000,000)
Contribution per unit = $100 ($189 - $89)
Total fixed costs for the current year:
Fixed
Cost of goods sold 30% * $101,000,000 = $30,300,000
Selling expenses 25% * $16,000,000 = 4,000,000
Administrative expenses 50% * $12,600,000 = 6,300,000
Total fixed costs = $40,600,000
Projected sales for the next year = $202,230,000 ($189,000,000 + $13,230,000)
Percentage Increase in sales for the next year = $13,250,000/$189,000,000 * 100 = 7%
Fixed costs caused by expansion = $4,500,000
Total fixed costs = $45,100,000 ($40,600,000 + $4,500,000)
Variable costs = $95,230,000 ($89,000,000 * 1.07)
Contribution margin:
Sales $202,230,000
Variable costs 95,230,000
Contribution margin $107,000,000
Expenses:
Fixed costs 45,100,000
Operating income $61,900,000
Sales volume = 1,070,000 units (1,000,000 * 1.07)
Contribution per unit = $107,000,000/1,070,000 = $100
Sales at current level:
Sales $189,000,000
Variable costs 89,000,000
Contribution $100,000,000
Fixed costs 45,100,000
Operating income $54,900,000