Liam Company had sales in 2020 of $1,200,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $400,000.

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 2020 as currently described and assuming the changes are made as described for Liam Company. (Two separate income statements)