Astro 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 2016s activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain 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.

ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2015

Sales $1,000,000

Variable costs 800,000

Contribution margin 200,000

Fixed costs 250,000

Net loss $(50,000)