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

Forecasted contribution margin income statement sales (37.7*20,200)= 761540 Variable expense (15.08*20200) 304616 Contribution margin 456924 Fixed costs (204000+152000) 356000 Net income 100924 contribution margin = 37.7-15.08 = 22.62 Contribution margin ratio 22.62/37.7= 60.00% Choose numerator                               /           choose denominator       =                  sales dollars required (fixed costs +target income) contribution margin ratio= sales dollars required 576,000 60% 960000 Choose numerator                               /           choose denominator       =                  sales units required (fixed costs+target income) contribution margin         = sales units required 576,000 22.62 25464.19 forecated contribution margin income statement sales 37.7 960,000 Variable expense 15.08 384000 Contribution margin 22.62 576000 Fixed costs (204000+152000) 356000 Net income 220000

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