Blanchard Company manufactures a single product that sells for $145 per unit and

Question

Blanchard Company manufactures a single product that sells for $145 per unit and whose total variable costs are $87 per unit. The company's annual fixed costs are $638,000. The sales manager predicts that annual sales of the company's product will soon reach 40,800 units and its price will increase to $208 per unit. According to the production manager, variable costs are expected to increase to $148 per unit but fixed costs will remain at $638,000. The income tax rate is 35%, what amounts of pretax and after-tax income can the company expect to earn from these predicted changes? Prepare a forecasted contribution margin income statement. BLANCHARD COMPANY Forecasted Contribution Margin Income Statement Units $ per unit Contribution margin

Explanation / Answer

Solution:

BLANCHARD COMPANY

Forecasted Contribution Margin Income Statement

Units

$ Per Unit

Sales Revenue

40,800

$208

$8,486,400

Variable Costs

40,800

$148

$6,038,400

Contribution Margin (8486,400 - 6038,400)

40,800

$60

$2,448,000

Fixed Costs

$638,000

Profit Before Tax (2448,000 - 638,000)

$1,810,000

Income Tax Expense (35% of 1810,000)

$633,500

Income after tax or Net Profit (1810,000 - 633,500)

$1,176,500

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BLANCHARD COMPANY

Forecasted Contribution Margin Income Statement

Units

$ Per Unit

Sales Revenue

40,800

$208

$8,486,400

Variable Costs

40,800

$148

$6,038,400

Contribution Margin (8486,400 - 6038,400)

40,800

$60

$2,448,000

Fixed Costs

$638,000

Profit Before Tax (2448,000 - 638,000)

$1,810,000

Income Tax Expense (35% of 1810,000)

$633,500

Income after tax or Net Profit (1810,000 - 633,500)

$1,176,500

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