Astro Co. sold 20,700 units of its only product and incurred a $83,778 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 $157,000. 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 Variable costs $790,740 553,518 Contribution margin Fixed costs 237,222 321,000 Net loss $(83,778)