Jetson Co. sold 20,000 units of its only product and incurred a $50,000 loss (ig

Question

Jetson Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012 activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $150,000. The maximum output capacity of the company is 40,000 units per year.Contribution Margin Income StatementFor Year Ended December 31, 2011Sales 750000 Variable costs 600000 Contribution margin 150000 Fixed costs 200000 Net loss (50000). Prepare a forecasted contribution margin income statement for 2012 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold (20,900 units) will not change, and no income taxes will be due. I am having trouble computing the variable cost. Can someone please help me? I tried to compute 20900*19.20 and 20900*19.19 but it isn't the correct answer. Everytime I ask this question this is the answer I get. This seems reasonable to me: First, you are looking for an after tax income (or profit) of $140, 000 assuming a tax-rate of 30%. Hence, this means you would need to earn a pre-tax income of X * (100%-30%) = $140,000, or X = $140,000 / .7 = $200,000. Second, the original unit cost can be determined by solving the equation, Sales - (Fixed costs + Variable costs) = -$50,000 or, $750,000 -(200,000 + (U x 20,000)) = -$50,000, where U = unit cost. Solving for U, $750,000 - $200,000 - 20,000U =-$50,000 -20,000U = -600,000, U = $30 / unit Third, The variable unit cost can be reduced by 50%, hence the new unit cost = $30 x 50% = $15. So, here is what we know: if we invest another $150,000 and automate more operations then our new unit cost will be $15/unit. This means our new fixed costs will increase by the cost of the new machine: new fixed costs = old fixed cost + new machine cost = $200,000 + $150,000 = $300,000. Now we put it all together, For 2012, Profit = Sales -(New Fixed Costs + (Number of Units x Unit cost)), or $200,000 = Sales - ($350,000 + (40,000 x $15)), or $200,000 = Sales - ($350,000 + $600,000), or Sales = $200,000 + $950,000 Sales = $1,150,000 Summarizing: We can make an after-tax profit of $140,000, if we generate a pre-tax profit of $200,000 at a 30% tax rate, by selling $1,150,000 at a cost of $950,000. Our cost of $950,000 includes our fixed costs of $350,000 plus a variable cost of $600,000. Our variable cost was calculated by reducing our old variable cost by 50% and producing the maximum number of units

Explanation / Answer

PLZ RATE ME.........

if the company did 1,000,000 in sales with a 200,000 contribution margin, then they are operating on a 20 cent per dollar profit margin, so in order to make up for the 50,000 lost they need an additional 250,000 in sales. so 1,250,000 would be the break even point. It would look like this

Sales- 1,250,000
Variable cost- 1,000,000
Contribution margin 250,000
fixed cost 250,000
net- even

predicted break even point in 2009

variable cost decreased by 50%, so the VC is now 40 cents per dollar.
fixed cost was increased to 450,000
in order to get a 450,000 contribution margin

Sales- 750,000
Variable costs - 300,000
Contribution margin - 450,000
Fixed cost - 450,000
Net - even


Ok so Part 4, The units cost 50 dollars each, their sales was 1,000,000 for 20,000 units, 50 bucks each. With the Machine installed their new VC is 40 cents per dollar. They need a gross profit of 200,000 to net 140,000 after 30% tax. They are now operating on a 60% CM, and need a CM of 650,000 to cover fixed costs and 30% tax for a 140,000 net profit. So 1,083,350 in sales, or roughly 21,667 units.

Part 5, the prepared forecast contribution margin would look like this.

Sales- 1,083,350
Variable cost- 433,340
Contribution margin- 650,010
Fixed cost- 450,000
Gross Profit- 200,010
30% Tax- 60,003
Net Profit- 140,007

Thats the closest I can get it to 140K, but its right.

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