Financial and Managerial Accounting: Information for Decisions, Sixth Edition Pr

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Financial and Managerial Accounting: Information for Decisions, Sixth Edition

Problem 18-4B (Page 833)

Rivera Co. sold 20,000 units of its only product and incurred a S50,000 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 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $150,000. The maximum output capacity of the company is 40,000 units per year Problem 18-4B Break-even analysis; income targeting and forecasting C2 P2 A1 RIVERA COMPANY Contribution Margin Income Statement For Year Ended December 31,2015 Sales Variable costs Contribution margin Foced costs $750,000 600,000 150,000 200,000 Required 1. Compute the break-even point in dollar sales for year 2015 2. Compute the predicted break-even point in dollar sales for year 2016 assuming the machine is installed and no change occurs in the unit selling price. (Round the change in variable costs to a whole number.) 3. Prepare a forecasted contribution margin income statement for 2016 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not Check $100,000 13) Not income, change, and no income taxes will be due. 4. Compute the sales level required in both dollars and units to earn S200,000 of target pretax income in 2016 with the machine installed and no change in unit sales price. (Round answers to whole dollars 4) Required sales, $916,667 or 24,445 units lboth rounded and whole units.) 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.

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