Question

Required information The following information applies to the questions displayed below. Astro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $200,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 Sales $1,000,000 Variable costs 800,000 Contribution margin 200,000 Fixed costs 250,000 Net loss $ (50,000)

Answer 1

Variable cost per unit = ($800,000 - 50%) / 20,000 = $20

Selling price = $1,000,000 / 20,000 = $50

Fixed cost = $250,000 + $200,000 = $450,000

Contribution margin = $50 - $20 = $30

Contribution margin ratio = $30 / $50 = 60%

Fixed cost plus per tax income = $450,000 + $200,000 = $650,000

4.

Choose numerator	/	Choose denominator	=	Sales Dollars required
Fixed cost plus pre tax income	/	Contribution margin ratio	=	Sales dollars required
$650,000	/	60%	=	$1,083,333
Choose numerator	/	Choose denominator	=	Sales units required
Fixed cost plus per tax income	/	Contribution margin per unit	=	Sales units required
$650,000	/	$30	=	21,667

5.

	Per unit
Sales	$50	$1,083,350
Variable cost	$20	$433,340
Contribution margin	$30	$650,010
Fixed cost		$450,000
Net operating income		$200,010