Astro Co. sold 20,200 units of its only product and incurred a $51,692 loss (ign

Question

Astro Co. sold 20,200 units of its only product and incurred a $51,692 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 50% by installing a machine that automates several operations. To obtain of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2015 Sales Variable costs $761,540 609,232 Contribution margin Fixed costs 152,308 204,000 Net loss $(51,692)

Explanation / Answer

a.

Contribution margin per unit:

Sales per unit $37.7 ($761540 / 20200 units)

Variable cost per unit $30.16($609232 / 20200 units)

Contribution margin per unit $7.54

Contribution margin ratio = $7.54 / $37.7

= 0.2 or 20%

Breakeven point in dollar sales = Fixed expenses / Contribution margin ratio

= $204000 / 0.2

= $1020000.

b.

Contribution margin:

Sales per unit $37.7

Variable cost per unit $15.08($609232 * 50% / 20200 units)

Contribution margin $22.62

Contribution margin ratio = $22.62 / $37.7

= 0.6 or 60%

Breakeven point in dollar sales = $204000 + $152000 / 0.6

= $593333.

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