Astro Co. sold 19,000 units of Its only product and Incurred a $128,000 loss (Ig
ID: 2336245 • Letter: A
Question
Astro Co. sold 19,000 units of Its only product and Incurred a $128,000 loss (Ignoring taxes) for the current year as shown here. During a planning session for year 2018's activities, the production manager notes that variable costs can be reduced 30% by installing a machine that automates several operations. To obtain these savings, the company must Increase Its annual fixed costs by $140,000. The maximum output capacity of the company is 40,000 units per year ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 Sales Variable costs Contribution margin Fixed costs Net loss $ 760,eee 608,eee 152,eee 28,eee $ (128,eee) Problem 18-4A Part 4 4. Compute the sales level required in both dollars and units to earn $100,000 of target pretax Income In 2018 with the machine Installed and no change In unit sales price. (Do not round Intermedlate calculations. Round your answers to 2 declmal places. Round "Contrlbution mergin ratlo" to nearest whole percentege) ales level required in dollars Choose Numerator: Choose Denominator: Sales dollars required Sales dollars required ales level required in units Choose Numerator: Choose Denominator:Sales units required - Sales units requiredExplanation / Answer
calculation of Selling price
(A)
sales value
$ 760,000.00
(B)
Sales Units
19000
(A/B)
Sales price per Unit
$ 40.00
Calculation of Current and 2018's Variable cost per unit
(A)
Current Variable cost in total
$ 608,000.00
(B)
Sales Units
19000
(A/B)
variable cost per Unit
$ 32.00
Decrease in variable cost (32-30%)
$ 9.60
2018 variable cost per unit
$ 22.40
Calculation of CM ratio
(Contribution per unit/sales price)
(17.6/40)
44%
Sale Price per unit
$ 40.00
CM Ratio
44%
Unit Contribution
$ 17.60
Unit Variable cost [Answer 1]
$ 22.40
A
Fixed Cost (280000+140000)
$ 420,000.00
B
Unit Contribution
$ 17.60
C=A/B
Break Even point in Unit Sales [Answer 2(a)]
$ 23,863.64
D
CM Ratio
44%
E=A/D
Break even point in dollar sales [Answer 2(b)]
$ 954,545.45
A
Fixed Cost
$ 420,000.00
B
Expected annual profits
$ 100,000.00
C=A+B
Total contribution required
$ 520,000.00
D
Unit contribution
$ 17.60
E=C/D
No. of units to earn target profit
$ 29,545.45
F=E x $40 per unit
Amount of Sale dollars
$ 1,181,818.18
Answer
Sales level required in dollars
Choose Numerator
/
Choose denominator
=
Sales Dollars required
Contribution+ required profit
/
CM RATIO
=
Sales Dollars required
$ 520000
/
44%
$ 1,181,818.18
Sales level required in Units
Choose Numerator
/
Choose denominator
=
Sales Units Required
Contribution+ required profit
/
Contribution per Unit
=
Sales Units Required
$ 520000
/
17.60
29545.45 units
Or 29546 units approx
calculation of Selling price
(A)
sales value
$ 760,000.00
(B)
Sales Units
19000
(A/B)
Sales price per Unit
$ 40.00
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