2 part question

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?

Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $186 per unit during the current year. Its income statement is as follows:

Sales			$186,000,000
Cost of goods sold			(98,000,000)
Gross profit			$88,000,000
Expenses:
Selling expenses	$16,000,000
Administrative expenses	10,800,000
Total expenses			(26,800,000)
Operating income			$61,200,000

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 $13,020,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs.