Required information Problem 5-4A Break-even analysis; income targeting and forecasting Lo C2, P2, A1 [The following information applies to the questions displayed below.) Astro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2018'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 $200,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 Sales $1,000,000 Variable costs 800,000 Contribution margin 200,000 250,000 Net loss $ (50,000) Fixed costs Problem 5-4A Part 1 Required: 1. Compute the break-even point in dollar sales for year 2017. Current Contribution Margin Per Unit Sales Variable costs Contribution margin Contribution Margin Ratio Choose Numerator: 0 1 Choose Denominator: / = Contribution Margin Ratio Contribution margin ratio 0 Break-Even Point in Dollar Sales: Choose Denominator: Choose Numerator: Il Break-Even Point in Dollars 11 Break-even point in dollars 0 Problem 5-4A Part 2 2. Compute the predicted break-even point in dollar sales for year 2018 assuming the machine is installed and there is no change in the unit selling price. Contribution margin per unit Proposed Sales Variable costs $ 0 Contribution margin Contribution Margin Ratio Choose Numerator: 1 Choose Denominator: 1 Contribution Margin Ratio Contribution margin ratio 0 Break-Even Point In Dollar Sales with New Machine: Choose Numerator: Choose Denominator: Break-Even Point in Dollars Break-even point in dollars 0 Problem 5-4A Part 3 3. Prepare a forecasted contribution margin income statement for 2018 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. ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 Contribution margin Problem 5-4A Part 4 4. Compute the sales level required in both dollars and units to earn $200,000 of target pretax income in 2018 with the machine installed and no change in unit sales price. Sales level required in dollars Choose Numerator: Choose Denominator: Sales Dollars Required Sales dollars required 1 = Sales level required in units Choose Numerator: Choose Denominator: Sales Units Required Sales units required = 1 Problem 5-4A 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. (Round your intermediate calculation and final answer to the nearest whole dollar) ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 $ Per Unit $ $ 50 Contribution margin 0 0
