Problem 21-4A Break-even analysis; income targeting and forecasting LO C2, P2, A
ID: 2437008 • Letter: P
Question
Problem 21-4A Break-even analysis; income targeting and forecasting LO C2, P2, A1 The following information applies to the questions displayed below.] Astro Co. sold 20,100 units of its only product and incurred o $63.560 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 reduced 40% by installing a machine that automates several oper increase its annual fixed costs by $151,000. The maximum output capacity of the company is 40,000 units per year be s. To obtain these savings, the company must ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 s 755,760 Sales Variable costs Contribution margin Fixed costs iet loss 566,820 252,500 s (63,560)Explanation / Answer
Answer:
Contribution margin per unit
Sales price per unit ($755760 / 20,100)
37.6
per pair
Variable costs per unit ($566820 / 20,100)
28.2
per pair
Contribution margin ratio ($37.60-28.20) )
9.4
per pair
Contribution Margin ratio
Choose numerator
/
Choose Denominator
=
CM ratio in dollar
Contribution margin Per unit
/
Sales Per unit
=
9.40
/
37.60
=
25%
Break even point in dollar sale
Choose numerator
/
Choose Denominator
=
Break even point in dollar
Fixed cost
/
Contribution Margin ratio
=
252500
/
25%
=
1010000
Contribution margin per unit
Sales price per unit ($755760 / 20,100)
37.6
per pair
Variable costs per unit ($566820 / 20,100)
28.2
per pair
Contribution margin ratio ($37.60-28.20) )
9.4
per pair
Contribution Margin ratio
Choose numerator
/
Choose Denominator
=
CM ratio in dollar
Contribution margin Per unit
/
Sales Per unit
=
9.40
/
37.60
=
25%
Break even point in dollar sale
Choose numerator
/
Choose Denominator
=
Break even point in dollar
Fixed cost
/
Contribution Margin ratio
=
252500
/
25%
=
1010000
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