Volmar Company had sales in 2012 of $1,250,000 on 50,000 units. Variable costs totaled $600,000, and fixed costs totaled $500,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However, to process the new raw material, fixed operating costs will increase by $50,000. Management feel that one half 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 10% increase in the number of units sold.
Instructions
Prepare a CVP income statement for 2012,
(a) Assuming the changes have not been made, and
(b) Assuming that changes are made as described?