Halko Company had sales in 2002 of \($1,500,000\) on 60,000 units. Variable costs totaled \($720,000\), and fixed costs totaled $500,000.

A new raw material is available that will decrease the variable costs per unit by 20%

(or $2.40). However, to process the new raw material, fixed operating costs will increase by \($50,000\). Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.

Instructions

Prepare a CVP income statement for 2002, assuming the changes are made as described.