Question

Carey Company had sales in 2016 of $1,658,800 on 63,800 units. Variable costs totaled $1,148,400, and fixed costs totaled $467,000 A new raw material is available that will decrease the variable costs per unit by 20% (or $3.60). However, to process the new raw material, fixed operating costs will increase by $94,000. 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 2017, assuming the changes have not been made. (Round per unit cost to 2 decimal places, e.g. 5.25 and all other answers to decimal places, eg. 1,225 CAREY COMPANY CVP Income Statement For the Year Ended December 31, 2017 , Total Per Unit Sales 1,658,800 $ 26 Variable Costs 1,148,400 Contribution Margin 510.400 Fixed Costs 467,000

Answer 1

Per Unit Answer to Requirement a. CAREY COMPANY CVP Income Statement For the year ended December 31, 2017 Total Sales 1,658,800 Variable Costs 1,148,400 Contribution Margin 510,400 Fixed Costs 467,000 Net Income / (Loss) 43,400 26.00 18.00 8.00 Calculation: Sale price per Unit = $1,658,800 / 63,800 = $26 Variable Cost per Unit = $1,148,400 / 63,800 = $18 Contribution Margin per Unit = $540,400 / 63,800 = $8 Per Unit Answer to Requirement b. CAREY COMPANY CVP Income Statement For the year ended December 31, 2017 Total Sales 1,621,158 Variable Costs 964,656 Contribution Margin 656,502 Fixed Costs 561,000 Net Income / (Loss) 95,502 24.20 14.40 9.80

Calculation:

Expected Variable Cost per Unit = $18 - $3.60
Expected Variable Cost per Unit = $14.40

Expected Sale Price per unit = $26 – ($3.60 * 1/ 2)
Expected Sale Price per unit = $24.20

Expected Units sold = 63,800 * 1.05
Expected Units sold = 66,990 Units

Expected Fixed Cost = $467,000 + $94,000
Expected Fixed Cost = $561,000