Astro Co. sold 21,000 units of its only product and incurred a $12,000 loss (ign

Question

Astro Co. sold 21,000 units of its only product and incurred a $12,000 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 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $190,000. The maximum output capacity of the company is 40,000 units per year.

1- Compute the sales level required in both dollars and units to earn $150,000 of after-tax income in 2014 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 40%.

2-Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 40%.

Astro Co. sold 21,000 units of its only product and incurred a $12,000 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 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $190,000. The maximum output capacity of the company is 40,000 units per year.

Explanation / Answer

  Forecasted contribution margin income statement

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