Astro Co. sold 20,700 units of Its only product and incurred a $83,778 loss (Ign

Question

Astro Co. sold 20,700 units of Its only product and incurred a $83,778 loss (Ignoring taxes) for the current year as shown here. During a planning session for year 2016's 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 $157,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2015 $790,740 553,518 237,222 Sales Varlable costs Contribution margin Fixed costs 321,000 Net loss $ (83,778) value 10.00 points Required 1. Compute the break-even point in dollar sales for year 2015. (Round your answers to 2 decimal places.) Contribution Margin Per Unit Current Contribution Margin Ratio Choose Numerator: Choose Denominator: Contribution Margin Ratio Contribution margin ratio Break-Even Point in Dollar Sales: Choose Numerator: Choose Denominator: Break-Even Point in Dollars Break-even point in dollars

Explanation / Answer

Solution: 1

Sales price per unit= sales/ units sold = 790740/20700 = $ 38.2 per unit

Variable cost per unit= variable cost/ units sold = 553518/20700 = $26.74 per unit

Break even point occurs when sales becomes equal to costs. Therefore, we will assume x as the break even units.

321000 + 26.74X = 38.2X = 11.46X= 321000

It implies; X = 321000/11.46 = 28010 units sold to break even

Now, break even point in dollar sales= 28010*$38.2 = $ 1069982

Solution:2

New variable cost = Half of original = 276759

New variable cost per unit = 276759/20700 =$13.37 per unit

New fixed cost = 478000

New break even point = 478000 + 13.37X = 38.2X= 24.83X =478000

It implies; X = 478000/24.83 = 19250 units sold to break even

Break even point in dollar sales = 19250 * $38.2 =$735350

Solution:3

Astro Company

Forecasted income statement for 2016

Solution:4

478000+13.37X + 270000= 38.2X

= 24.83X=748000 = X =30124 units

30124 * 38.2 =$1150736.8

Solution:5

Astro Company

Forecasted contribution margin income statement for 2016

Sales 790740 variable cost 276759 contribution margin 513981 fixed cost 478000 Net gain 35981

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