Required Information Problem 05-4A Break-even analysis; income targeting and forecasting Lo C2, P2, A1 [The following information applies to the questions displayed below.) Astro Co. sold 19,700 units of its only product and incurred a $59,290 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 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $147,000. 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 $ 732, 840 Variable costs 549,630 Contribution margin 183, 210 Fixed costs 242,500 Net loss $ (59,290) Problem 05-4A Part 1 Required: 1. Compute the break-even point in dollar sales for 2019. (Round your answers to 2 decimal places.) Current Year Contribution Margin Per Unit Sales Variable costs Contribution margin Contribution Margin Ratio Choose Numerator: Contribution margin per unit Choose Denominator: Selling price per unit Contribution Margin Ratio Contribution margin ratio Break-Even Point in Dollar Sales: Choose Numerator: Choose Denominator: Break-Even Point in Dollars Total fixed costs / Contribution margin ratio Break-even point in dollars 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.) Proposed Contribution Margin per unit Contribution margin Sales Contribution margin Contribution Margin Ratio Choose Numerator: $ 0.00 1 Choose Denominator: Contribution Margin Ratio Contribution margin per unit 1 Selling price per unit Contribution margin ratio Break-even point in dollar sales with new machine: Choose Numerator: 1 Choose Denominator: Fixed costs per unit 1 Contribution margin per unit Break-Even Point in Dollars Break-even point in dollars 0 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.) ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2020 Sales Variable costs Contribution margin Fixed costs Net income 4. Compute the sales level required in both dollars and units to earn $170,000 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 ratlo" to nearest whole percentage) Sales level required in dollars Choose Numerator: Fixed costs plus pretax income 1 Choose Denominator: Contribution margin per unit Sales Dollars Required = Sales dollars required Sales level required in units Choose Numerator: Fixed costs plus net income Choose Denominator: Selling price per unit Sales Units Required Sales units required = 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 $ 37.20 Variable costs Contribution margin Fixed costs Income before taxes
