Rivera Co. sold 20,000 units of its only product and reported income of $20,000 for the current year. During a planning session for next years activities, the production manager notes that variable costs can be reduced 25% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $113,000. The selling price will not change.

Contribution Margin Income StatementFor Year Ended December 31

Sales (20,000 $37 .50 per unit) . . . . . . . . . . . $750,000

Variable costs (20,000 $30 per unit) . . . . . . . 600,000

Contribution margin . . . . . . . . . . . . . . . . . . . . . .150,000

Fixed costs . . . . . . . . . . . . . . . . . . . . . . . ..........130,000

Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20,000

Compute the break-even point in dollar sales for next year assuming the machine is installed.

2. Prepare a contribution margin income statement for next year that shows the expected results with the machine installed. Assume sales are $750,000.

3. Compute the sales level required in both dollars and units to earn $87,000 of target income for next year with the machine installed.