Problem 21-4A Break-even analysis; income targeting and forecasting LO C2, P2, A1

Astro Co. sold 26,000 units of its only product and incurred a $42,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2014s 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 $330,000. The maximum output capacity of the company is 40,000 units per year.

Compute the sales level required in both dollars and units to earn $77,000 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%.

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%.