6. Determine the maximum operating income possible with the expanded plant.

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.