Jetson Co. sold 19,100 units of its only product and incurred a $63,282 loss (ig

Question

Jetson Co. sold 19,100 units of its only product and incurred a $63,282 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012%u2019s 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 $141,000. The maximum output capacity of the company is 40,000 units per year.

  

JETSON COMPANY
Contribution Margin Income Statement
For Year Ended December 31, 2011

  Sales

$

699,060

  Variable costs

489,342

  Contribution margin

209,718

  Fixed costs

273,000

  Net loss

$

(63,282

)

rev: 02_07_2012

Required:

1.

Compute the break-even point in dollar sales for year 2011. (Round your intermediate calculations to 2 decimal places and final answer to nearest dollar amount. Omit the "$" sign in your response.)

  

  Break-even point in dollar sales for year 2011

$

2.

Compute the predicted break-even point in dollar sales for year 2012 assuming the machine is installed and there is no change in the unit sales price. (Round your intermediate calculations to 2 decimal places and final answer to nearest dollar amount. Omit the "$" sign in your response.)

  Break-even point in dollar sales for year 2012

$

rev: 02_07_2012

3.

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 (19,100 units) will not change, and no income taxes will be due. (Input all amounts as positive values. Omit the "$" sign in your response.)

  

JETSON COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2012

  

$

  

  

  

  

  

  Net income

$

Jetson Co. sold 19,100 units of its only product and incurred a $63,282 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012%u2019s 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 $141,000. The maximum output capacity of the company is 40,000 units per year.

Explanation / Answer

Hi,

Please find the answer as follows;

Part A:

Break Even Point (Dollars) = 273000/(209718/699060)*100 = 910000

Part B:

Break Even Point (Dollar) = (273000 + 141000)/(36.60 - 12.81) = 17402.27*36.60 = 636923

Part C:

Thanks.

Sales (19100*36.6) 699060 Variable Costs (19100*12.81) 244671 Contribution 454389 Fixed Costs 414000 Net Income 40389

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