Blanchard Company manufactures a single product that sells for $180 per unit and

Question

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $176 per unit. The company’s annual fixed costs are $631,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,100 units and its price will increase to $201 per unit. According to the production manager, variable costs are expected to increase to $141 per unit but fixed costs will remain at $631,000. The income tax rate is 25%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

Prepare a forecasted contribution margin income statement.

Contribution margin

Fixed costs

Income before taxes

Income taxes

BLANCHARD COMPANY Forecasted Contribution Margin Income Statement Units $ per unit Contribution margin 0 $0

Contribution margin

Fixed costs

Income before taxes

Income taxes

$0

Explanation / Answer

Particulars Per Unit Qty Total Sales (40100 x 201) 201 40100 8060100 Less: Variable Cost (40100 x 141) 141 40100 5654100 Contribution Margin 60 40100 2406000 Less: Fixed Cost 631000 EBIT 1775000 Less: Tax at 25% 443750 EAT 1331250

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