Problem 21-4A Break-even analysis; income targeting and forecasting LO C2, P2, A1
Problem 21-4A Break-even analysis; income targeting and forecasting LO C2, P2, A1 (The following information applies to the questions displayed below.) Astro Co. sold 19,600 units of its only product and incurred a $46,568 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's 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 $146,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 Sales $ 727,160 Variable costs 581,728 Contribution margin 145,432 Fixed costs 192,000 Net loss $ (46,568) Problem 21-4A Part 1 Required: 1. Compute the break-even point in dollar sales for 2019. (Round your answers to 2 decimal places.) Contribution Margin Per Unit Current Year Contribution margin $ 0.00 Contribution Margin Ratio Choose Numerator: Contribution margin per unit Choose Denominator: Selling price per unit Contribution Margin Ratio Contribution margin ratio 1 0 Break-Even Point in Dollar Sales: Choose Numerator: Choose Denominator: = Break-Even Point in Dollars Selling price per unit / Contribution margin ratio Break-even point in dollars 0 Problem 21-4A Part 2 2. Compute the predicted break-even point in dollar sales for 2020 assuming the machine is installed and there is no change in the unit selling price. (Round your answers to 2 decimal places.) Contribution Margin per unit Proposed $ 0.00 Contribution Margin Ratio Choose Numerator: / Choose Denominator: Contribution Margin Ratio / Contribution margin ratio Break-even point in dollar sales with new machine: Choose Numerator: Choose Denominator: = Break-Even Point in Dollars / 11 Break-even point in dollars 0 Problem 21-4A Part 3 3. Prepare a forecasted contribution margin income statement for 2020 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due. (Do not round intermediate calculations. Round your answers to the nearest whole dollar.) Answer is complete and correct. ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2020 Sales $ 727,160 Variable costs 290,864 Contribution margin 436,296 Fixed costs 338,000 Net income $ 98,296 Problem 21-4A Part 4 4. Compute the sales level required in both dollars and units to earn $160,000 of target pretax income in 2020 with the machine installed and no change in unit sales price. (Do not round intermediate calculations. Round your answers to 2 decimal places. Round "Contribution margin ratio" to nearest whole percentage) Answer is complete and correct. Sales level required in dollars Choose Numerator: 1 Choose Denominator: Sales Dollars Required Sales dollars required $ 830,000 1 Contribution margin ratio 60.00% 1 Fixed costs plus pretax income $ 498,000 Sales level required in units Choose Numerator: 1 Choose Denominator: = Sales Units Required Sales units required 1 Contribution margin per unit Fixed costs plus pretax income $ 498,000 / $ 22.26 22,372 units Problem 21-4A Part 5 5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due. (Do not round intermediate calculations. Round "per unit answers" to 2 decimal places.) ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2020 $ Per Unit $ Sales $ 37.10 Variable costs Contribution margin 0 Fixed costs 338,000 Income before taxes -338,000
