Respuesta :
Answer:
Portman Company
1. The total variable costs and the total fixed costs for the current year are:
Total variable costs $88,000,000
Total fixed costs $40,000,000
2. Determination of (a) the unit variable cost and (b) the unit contribution margin for the current year.
a) Unit variable cost $88
b) Unit contribution margin $100
3. The break-even sales (units) for the current year are:
= 400,000 units.
4. The break-even sales (units) under the proposed program for the following year are:
= 450,000 units.
5. 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 is:
= 1,050,000,000 units.
6. The maximum operating income possible with the expanded plant is:
= $61,000,000.
7. If the proposal is accepted and sales remain at the current level, the operating income or loss be for the following year will be:
= $55,000,000.
8. Based on the data given (1 - 6), would you recommend accepting the proposal?
In favor of the proposal because of the possibility of increasing income from operations.
Explanation:
a) Data and Calculations:
Sales units = 1,000,000
Selling price = $188
Total
Sales $188,000,000
Cost of goods sold (100,000,000)
Variable cost of goods sold = $70,000,000
Fixed cost of goods sold = $30,000,000
Gross profit $88,000,000
Expenses:
Selling expenses $16,000,000
Variable selling expenses $12,000,000
Fixed selling expense = $4,000,000
Administrative expenses 12,000,000
Variable administrative expenses = $6,000,000
Fixed administrative expenses = $6,000,000
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% 50%
Total Unit Cost
Variable cost of goods sold = $70,000,000 $70
Variable selling expenses 12,000,000 12
Variable administrative expenses 6,000,000 6
Total variable costs = $88,000,000 $88
Contribution margin = $100 ($188 - $88)
Fixed cost of goods sold = $30,000,000
Fixed selling expense = 4,000,000
Fixed administrative expenses = 6,000,000
Total fixed costs = $40,000,000
Break-even sales units = $40,000,000/$100 = 400,000 units
Proposal:
Sales revenue increase = $11,280,000
Fixed costs by $5,000,000 to $45,000,000 ($40 million + $5 million)
Sales units increase = 60,000 ($11,280,000/$188)
Break-even sales units = 450,000 ($45,000,000/$100)
Units to realize target profit of $60,000,000:
= ($45,000,000 + $60,000,000)/$100
= $105,000,000/$100
= 1,050,000,000 units
Profit with the expanded plan
= Total contribution - Fixed Costs
= $100 * 1,060,000 - $45,000,000
= $106,000,000 - $45,000,000
= $61,000,000
With sales at current level of 1,000,000 units
Sales revenue = $188,000,000
Variable costs 88,000,000
Contribution $100,000,000
Fixed costs 45,000,000
Operating income $55,000,000
