[The following information applies to the questions displayed below.] Astro Co.

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[The following information applies to the questions displayed below.]

Astro Co. sold 15,000 units of its only product and incurred a $40,000 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 30% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $460,000. The maximum output capacity of the company is 40,000 units per year.

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 Co. sold 15,000 units of its only product and incurred a $40,000 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 30% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $460,000. The maximum output capacity of the company is 40,000 units per year.

Explanation / Answer

ASTRO COMPANY Forecasted Contribution Margin Income Statement For the Year 2014 Sales $ 1200000 Variable costs ($960000 - 30%) 672000 Contribution margin 528000 Fixed costs ($280000 + $460000) 740000 Net loss $ -212000

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