Astro Co. sold 26,000 units of its only product and incurred a $42,000 loss (ign
ID: 2497043 • Letter: A
Question
Astro Co. sold 26,000 units of its only product and incurred a $42,000 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 $330,000. 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 $ 1,300,000 Variable costs 910,000 Contribution margin 390,000 Fixed costs 432,000 Net loss $ (42,000 )
Compute the break-even point in dollar sales for year 2013. (Round variable costs to two decimal places.)
Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is installed and there is no change in the unit sales price.
Prepare a forecasted contribution margin income statement for 2014 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due.
Compute the sales level required in both dollars and units to earn $77,000 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 30%.
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 30%.
Required: 1.Compute the break-even point in dollar sales for year 2013. (Round variable costs to two decimal places.)
2 .Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is installed and there is no change in the unit sales price.
3.Prepare a forecasted contribution margin income statement for 2014 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due.
4.Compute the sales level required in both dollars and units to earn $77,000 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 30%.
5.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 30%.
Explanation / Answer
1)
Compute the contribution per unit = (Sales – Variable cost)/Number of units
= (1300000-910000)/26000 = $15 per unit.
Compute the 2013 Break-even point.
Breakeven = Fixed Costs /Contribution per unit = $432000/$15 = 28,800 units.
2)
Compute the predicted Break-even point for 2014.
Contribution per unit = (Sales – Variable cost)/Number of units
= (1300000-455000)/26000 = $32.5 per unit.
Breakeven point = (432000+330000)/32.5 = 23,446 units
3)
Particulars
Amount($)
Sales
1,300,000.0
Less: Variable costs
455,000.0
Contribution margin
845,000.0
Less:
Fixed Cost
762,000.0
Profit
83,000.0
4)
Particulars
Amount($)
Required Margin after tax
77000
Tax(77000*30/70)
33000
Required Margin before tax
110000
Add: Fixed Cost
762000
Contribution
872000
Sales (872000*100/65)
1341538.462
3)
Particulars
Amount($)
Sales
1,300,000.0
Less: Variable costs
455,000.0
Contribution margin
845,000.0
Less:
Fixed Cost
762,000.0
Profit
83,000.0
4)
Particulars
Amount($)
Required Margin after tax
77000
Tax(77000*30/70)
33000
Required Margin before tax
110000
Add: Fixed Cost
762000
Contribution
872000
Sales (872000*100/65)
1341538.462
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.