Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below.] Astro Co. sold 20,400 units of its only product and incurred a $53,368 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2018'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 $154,000. The maximum output capacity of the company is 40,000 units per year ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 Sales Variable costs Contribution margin 154,632 Fixed costs Net loss $773,160 618,528 208,000 $ (53,368) 5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due. (Do not round intermediate calculations. Round "per unit answers" to 2 decimal places.) ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 $ Per Unit 37.90 Contribution margin

Explanation / Answer

Ans. ASTRO COMPANY Forecasted contribution Margin Income Statement For the Year Ended December 31, 2018 $ per unit Amt.($) Sales (20,400 units) $          37.90          773,160 Less: Variable Cost (W.N. 2) $          15.16          309,264 Contribution Margin          463,896 Less: Fixed Cost (W.N. 3)          362,000 Net Profit          101,896 Working Notes : 1) Variable Cost per unit for year 2017 : Total Variable cost = $618,528 Total units sold = 20,400 Variable cost P.U. = $618,528 / 20,400 = $30.32 2) Variable Cost per unit for year 2018 : Variable cost P.U. = $30.32 x 50% = $15.16 3) Fixed cost for year 2018 : Total fixed cost = Fixed cost + Increased in Fix. Cost = $208,000 + $154,000 = $362,000

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