Question

Exercise 5-13 Forecasted income statement C2 Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company's annual fixed costs are $562,500. The sales manager predicts that annual sales of the company's product will soon reach 40,000 units and its price will increase to $200 per unit. According to the production manager, variable costs are expected to increase to $140 per unit, but fixed costs will remain at $562.500. The income tax rate is 20%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes? (Hint: Prepare a forecasted contri- ees (Hint: Prepare a forecasted contri- bution margin income statement as in Exhibit 5.21.) Check Forecasted after tax income, $1470.000

Answer 1

Contribution Margin Income Statement ( As per Sales manager's Forecast)
Sales ( 40,000 x 200)	8,000,000
Variable cost ( 40,000 x 135)	-5,400,000
Contribution margin	2,600,000
Fixed cost	-562,500
Pretax income	2,037,500
Income tax expense	-407,500
After tax income	$1,630,000

Contribution Margin Income Statement ( As per Production manager's Forecast)
Sales ( 40,000 x 180)	7,200,000
Variable cost ( 40,000 x 140)	-5,600,000
Contribution margin	1,600,000
Fixed cost	-562,500
Pretax income	1,037,500
Income tax expense	-207,500
After tax income	$830,000

Kindly comment if you need further assistance. Thanks‼!