Astro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ign
ID: 2452002 • Letter: A
Question
Astro 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 2014'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 $200,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2013 Sales Variable costs $1,000,000 800,000 Contribution margin Fixed costs 200,000 250,000 Net loss $ (50,000)Explanation / Answer
pretax income =After tax income /( 1 - tax)
= 140,000 / (1 -.30)
= 140,000 / .7
= $ 200,000
2)Variable cost = 800,000 * .50 = 400,000
Fixed cost = 250,000 + 200,000 = $ 450,000
New contribution = 1,000,000 - 400,000 = 600,000
contribution margin ratio = 600,000 / 1,000,000
= .60 or 60%
contribution per unit = 600,000 /20000 = $ 30 per unit
b sales dollars required = ( Fixed cost + pre tax profit) /Contribution margin ratio
= (450000 + 200000 ) / .60
=650000 / .60
= 1083,333.33
c)sales units required = (Fixed cost + pre tax income ) /contribution per unit
= (450000 + 200000) /30
= 650000 / 30
= 21667 units
5)
sales 50 1083350 [50*21667] less:variable cost 20 (433340) [20 *21667] conribution margin 30 650010 less:fixed cost (450000) Income before tax 200010 less: Tax (60003) net income 140007 (due to taking units in round figure)Related Questions
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