Booth Company had sales in 2020 of $ 1,730,000 on 69,200 units. Variable costs t

Question

Booth Company had sales in 2020 of $ 1,730,000 on 69,200 units. Variable costs totaled $ 1,038,000 and fixed costs totaled $457,000.

A new raw material is available that will decrease the variable costs per unit by 20% (or $ 3.00). However, to process the new raw material, fixed operating costs will increase by $ 124,000. Management feels that two-thirds of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 4% increase in the number of units sold.

Prepare a projected CVP income statement for 2020 assuming the changes have not been made. Booth Company CVP Income Statement

Explanation / Answer

1. Changes not made:

2. Changes made:

3. New Industry Specifications : Changes made:

4. Implementation of advertising promotion :

No, implementation of the advertising program is not recommended. Net operating income without the advertising program is $ 235,000. Net operating income after implementation of the advertising program drops to $ 200,400. Therefore, net income would decrease by $ 34,600.

Booth Company Projected CVP Income Statement For the year 2020 Sales Revenue $ 1,730,000 Less: Variable Costs 1,038,000 Contribution Margin $ 692,000 Fixed Costs 457,000 Net Operating Income $ 235,000

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