Astro Co. sold 23,000 units of its only product and incurred a $57,000 loss (ign
ID: 2488049 • Letter: A
Question
Astro Co. sold 23,000 units of its only product and incurred a $57,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2014’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 $210,000. The maximum output capacity of the company is 40,000 units per year.
2. Compute the break-even point in dollar sales for year 2013.
3. Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is installed and there is no change in the unit sales price.
4. Prepare a forecasted contribution margin income statement for 2014 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due.
5. Compute the sales level required in both dollars and units to earn $189,000 of after-tax income in 2014 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.
6. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%.
ASTRO COMPANYContribution Margin Income Statement
For Year Ended December 31, 2013 Sales $ 1,035,000 Variable costs 828,000 Contribution margin 207,000 Fixed costs 264,000 Net loss $ (57,000 )
2. Compute the break-even point in dollar sales for year 2013.
Per unit costs: Current Sales Variable costs Contribution margin $0.00 Contribution margin ratio Choose Numerator: / Choose Denominator: = Contribution margin ratio / = Contribution margin ratio 0 Break-even point in dollar sales: Choose Numerator: / Choose Denominator: = Break-even point in dollars / = Break-even point in dollars 03. Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is installed and there is no change in the unit sales price.
Per unit costs: Proposed Sales $1,035,000.00 Variable costs Contribution margin $1,035,000.00 Contribution margin ratio Choose Numerator: / Choose Denominator: = Contribution margin ratio / = Contribution margin ratio 0 Break-even point in dollar sales with new machine: Choose Numerator: / Choose Denominator: = Break-even point in dollars / = Break-even point in dollars 04. Prepare a forecasted contribution margin income statement for 2014 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due.
ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2014 Contribution margin 0 $05. Compute the sales level required in both dollars and units to earn $189,000 of after-tax income in 2014 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.
Calculation of targeted pretax income Pretax income Income taxes 30% After-tax income $189,000 Sales level required in dollars Choose Numerator: / Choose Denominator: = Sales dollars required / = Sales dollars required 0 Sales level required in units Choose Numerator: / Choose Denominator: = Sales units required / = Sales units required 06. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%.
ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2014 $ Per Unit $ $45.00 Contribution margin 0 0 Net incomeExplanation / Answer
2. Compute the break-even point in dollar sales for year 2013. Per Unit Costs Current Sales 1035000 Variable costs 828000 Contribution margin 207000 Contribution Margin Ration Contribution Margin Costs / Sales = Contribution Margin Ratio 207000 1035000 20% Breakeven point in dollar sales: Fixed Costs / Contribution Margin Ratio 264000 20% 1320000 3. Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is installed and there is no change in the unit sales price. Per Unit Costs Current Sales 1035000 Variable costs 414000 Contribution margin 621000 Contribution Margin Ration Contribution Margin Costs / Sales = Contribution Margin Ratio 621000 1035000 60% Breakeven point in dollar sales with new machine: Fixed Costs / Contribution Margin Ratio 474000 60% 790000 4. Prepare a forecasted contribution margin income statement for 2014 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due. ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2014 Sales 1035000 Variable costs 414000 Contribution Margin 621000 Fixed costs 474000 Net Income 147000 5. Compute the sales level required in both dollars and units to earn $189,000 of after-tax income in 2014 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%. Calculation of targeted pretax income Pretax income 270000 270000 Income taxes 30% 81000 After-tax income 189000 Sales level required in dollars (Pretax Income + Fixed Cost) / Contribution Margin ratio = Sales in dollars 744000 60% 1240000 Sales level required in units (Pretax Income + Fixed Cost) / Contribution Margin per unit = Sales in units 744000 27 27556 6. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%. ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2014 $ per unit $ Sales 45 1035000 Less:Variable costs 18 414000 Contribution Margin 27 621000 Less: Fixed costs 474000 Net Income 147000
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