Question
Vaughn Company had sales in 2020 of $1,975,000 on 79,000 units. Variable costs totaled $1,185,000 and fixed costs totaled $508,000. A new raw material
Vaughn Company had sales in 2020 of $1,975,000 on 79,000 units. Variable costs totaled $1,185,000 and fixed costs totaled $508,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $3.00). However, to process the new raw material, fixed operating costs will increase by $114,000. Management feels that two-thirds of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 4% increase in the number of units sold. Your answer is partially correct. Prepare a projected CVP income statement for 2020 assuming that changes are made as described. Vaughn Company CVP Income Statement For the Year Ended December 31, 2020 Sales Variable Costs Contribution Margin Less Fixed Costs Net Income/(Loss) $ $ 2212000 948000 1264000 622000 i 642000
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