Question

Carey Company had sales in 2019 of $1,923,000 on 64,100 units. Variable costs totaled $897,400, and fixed costs totaled $502,000. 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 $98,000. 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 For the Year Ended December 31, 2020 Total Per Unit Sales 1923000 1923000 $ 30 Variable Costs 897400 Contribution Margin 1025600 16 Fixed Costs 502000 Net Income/(Loss) 523600

Answer 1

Contribution margin income statement

	Total	Per unit
Sales revenue (64100*1.05*28.60)	1924923	28.60
variable cost	753816	11.20
Contribution margin	1171107	17.40
Fixed cost	600000
Net income (loss)	571107