Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 6, Problem 2PA
Break-even sales under present and proposed conditions
Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $188 per unit during the current year. Its income statement is as follows:
The division of costs between variable and fixed is as follows:
Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs.
Instructions
- 1. Determine the total variable costs and the total fixed costs for the current year.
- 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
- 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 $60,000,000 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? Explain.
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Chapter 6 Solutions
Managerial Accounting
Ch. 6 - Describe how total variable costs and unit...Ch. 6 - Which of the following costs would be classified...Ch. 6 - Describe how total fixed costs and unit fixed...Ch. 6 - Prob. 4DQCh. 6 - Prob. 5DQCh. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - Prob. 9DQCh. 6 - What does operating leverage measure, and how is...
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