Question 5: Cost-volume-profit analysis (part 2)

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The company's contribution format income statement for 2020 is given below:

	$
Sales (20,000 phones)	1,200,000
Variable expenses	900,000
Contribution margin	300,000
Fixed expenses	240,000
Net operating income	$ 60,000

Refer to the original income statement for 2020 above. In an effort to increase sales and profits, management is considering the use of a higher quality speaker in the phones. With the higher quality speaker, the variable costs would be $3 more per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher quality speaker would increase annual sales by at least 20%.

Required:

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(c) Assuming that the higher quality speaker is used, prepare a projected contribution format income statement for next year. (You can use a layout similar to the statement above.)