Rivera Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020’s activities, the production manager notes that variable costs can bereduced 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.

Required

1. Compute the break-even point in dollar sales for 2019.

2. Compute the predicted break-even point in dollar sales for 2020 assuming the machine is installed and no change occurs in theunit selling price. (Round the change in variable costs to a whole number.)

3. Prepare a forecasted contribution margin income statement for 2020 that shows the expected results with the machine installed.Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due.

4. Compute the sales level required in both dollars and units to earn $200,000 of target pretax income in 2020 with the machineinstalled and no change in unit sales price. (Round answers to whole dollars and whole units.)

5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assumeno income taxes will be due.

Transcribed Image Text:

Contributlon Margin Income Statement For Year Ended December 31, 2019 Sales ..... Variable costs .... Contribution margin Fixed costs Net loss... $750,000 600,000 150,000 200,000 $ (50,000)