Astro Co. ro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year as show as shown here. During a planning session for year 2014's activities, the production manager notes hat variable costs can be reduced 50% by installing a machine that automates several operations. To ob- these savings, the company must increase its annual fixed costs by $200,000. The maximum output capacity of the company is 40,000 units per year. Problem 5-4A Break-even analysis, income targeting and forecasting (2 P2 AL ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2013 Sales ......... . . .. $1,000,000 Variable costs.......... . 800.000 Contribution margin ........ 200,000 Fixed costs.... 250.000 Net loss................... (50.000) Check (3) Net income, $150,000 Required 1. Compute the break-even point in dollar sales for year 2013. 2. Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is in. stalled and there is no change in the unit sales price. 3. 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. 4. Compute the sales level required in both dollars and units to cam $140,000 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%. Hint: Use the procedures in Exhibits 5.22 and 5.23.) (Round answers to whole dollars or units.) 5. 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%. 141 Required sales $1,083,333 of 21.667 units Name : Date: _ Problem 5-4A Part 1 break-even in sales dollars = Fixed costs / Contribution margin ratio *To compute contribution margin ratio Sales price per unit ($ Variable costs per unit ($ Contribution margin ratio ($ 2014 break-even in sales dollars = Fixed costs / Contribution margin ratio = $ "To compute predicted fixed costs 2013 fixed costs plus 2014 Increase ()...... *To compute predicted contribution margin ratio Predicted sales price per unit (no change in sales price).... Predicted variable costs per unit ($ Predicted contribution margin ratio ($ Part 3 ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2014 Sales ()........ Variable costs() ........ ... ..... Contribution margin)... Fixed costs ................. Net income............. Acc. 213/ Mana. Acet. 19198 exsc Name Meanno Name : Date: Problem 5-4A (Continued) Part 4 (Fixed costs + Target pretax income) Contribution margin ratio Required sales in dollars = (rounded to whole dollars) Required sales in units = (Fixed costs + Target pretax income) Contribution margin per unit units (rounded to whole units) 2013 fixed costs plus 2014 increase () ...... ** Target after-tax income (given)......... Pretax target income - After-tax target income /(1-Tax rate) *** Predicted contribution margin ratio ($) / ................. + Taken from "required sales in dollars" above Part 5 ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2014 Sales () ... ... Variable costs ()..... Contribution margin ()....................... Fixed costs (from part 2)........ ..... Income before income taxes ............. Income taxes (........ Net income Acc. 213/ Mana, Arct