Astro Co. sold 19,000 units of its only product and incurred a $128,000 loss (ig
ID: 2558236 • Letter: A
Question
Astro Co. sold 19,000 units of its only product and incurred a $128,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2016's activities, the production manager notes that variable costs can be reduced 30% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $140,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statenent For Year Ended December 31, 2015 $760,000 608,000 Variable costs Contribution margin Fixed costs 152,000 280,000 Net loss $(128,000)Explanation / Answer
1.
Contribution margin per unit = contribution margin / number of units
= 152,000 / 19,000
= 8
Contribution margin ratio = Contriubution margin / Sales * 100
= 152,000 / 760,000 * 100
= 20%
Breakeven point in dollar sales = Fixed costs / Contribution margin ratio
= 280,000 / 0.2
= 1,400,000
2.
Sales = 760,000
Variable costs = 608,000 - (608,000*30%) = 425,600
Fixed costs = 280,000 + 140,000 = 420,000
Contribution margin = Sales - Variable costs
= 760,000 - 425,600
= 334,400
Contribution margin per unit = contribution margin / number of units
= 334,400 / 19,000
= 17.6
Contribution margin ratio = Contriubution margin / Sales * 100
= 334,400 / 760,000 * 100
= 44%
Breakeven point in dollar sales = Fixed costs / Contribution margin ratio
= 420,000 / 0.44
= 954,545.45
3.
ASTRO COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2016
4.
Sales required to earn desired income = (fixed costs+desired income) / contribution margin ratio
= (420,000+100,000) / 0.44
= 1,181,818.18
Sales level required in units = 1,181,818.18 / 40 per unit
= 29,545 units
5.
ASTRO COMPANY
Forecasted Contribution Margin Income Statement
(*) rounded off to 100,000
Sales 760,000 Variable costs 425,600 Contribution margin 334,400 Fixed costs 420,000 Net loss (85,600)Related Questions
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