Required information [The following information applies to the questions displayed below.] Astro Company sold 20,000 units of its only product and reported income of $25,000 for the current year. During a planning session for next year'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 $241,000. The selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($50 per unit) Variable costs ($40 per unit) Contribution margin Fixed costs Income $ 1,000,000 800,000 200,000 175,000 $ 25,000 1. Compute the break-even point in dollar sales for next year assuming the machine is installed. Answer is complete but not entirely correct. Contribution Margin Per Unit Proposed Sales $ 50 Variable costs Per unit 40 Per unit 10 Per unit Contribution margin Contribution Margin Ratio Numerator: Contribution margin per unit $ 10 Denominator: Selling price per unit Contribution Margin Ratio Contribution margin ratio $ 50 = 20% Break-Even Point in Dollar Sales with New Machine: Numerator: Fixed costs per unit $ Denominator: Contribution margin ratio 175,000 / 20% = $ Break-Even Point in Dollars Break-even point in dollars 875,000 2. Prepare a contribution margin income statement for next year that shows the expected results with the machine installed. Assume sales are $1,000,000. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Contribution margin 0 $ 0 3. Compute the sales level required in both dollars and units to earn $208,000 of target income for next year with the machine installed. Sales level required in dollars Numerator: I Denominator: 1 Sales level required in units Numerator: I Denominator: 1 = Sales dollars required = Sales units required