Question

Carey Company had sales in 2019 of $1,703,700 on 63,100 units. Variable costs totaled 1883,400, and fixed costs totaled $549,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.80). However, to process the new raw material, fixed operating costs will increase by $90,000 Management feels 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 5% increase in the number of units sold. (a) Prepare a projected CVP Income statement for 2020, assuming the changes have not been made. CAREY COMPANY CVP Income Statement Total Per Unit

Answer 1

Answer
a
CAREY COMPANY
CVP Income Statement
For the Year Ended December 31, 2020
	Total	Per unit
Sales	$      1,703,700	27
Variable costs	$         883,400	14
Contribution margin	$         820,300	13
Fixed costs	$         549,000
Net income/(loss)	$         271,300
b
CAREY COMPANY
CVP Income Statement
For the Year Ended December 31, 2020
	Total	Per unit
Sales	$      1,696,128	24.6
Variable costs	$         742,056	11.2
Contribution margin	$         954,072	13.4
Fixed costs	$         639,000
Net income/(loss)	$         315,072
Workings:
Revised sales units	66255	63100*1.05
Selling price	25.6	27-(2.8*50%)
Fixed costs	$         639,000	549000+90000