Question

Question 4 Crane Company had sales in 2019 of $1,586,000 on 61,000 units. Variable costs totaled $854,000, and fixed costs totaled $450,000. 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. CRANE COMPANY CVP Income Statement Total Per Unit

Answer 1

a.	Crane Company
	CVP Income Statement
	For the month ended 2020
		Total	Per unit
		(i)	(i) / 61000
	Sales	$ 15,86,000	$              26
Less:	Variable cost	$   8,54,000	$              14
	Contribution	$   7,32,000	$              12
Less:	Fixed cost	$   4,50,000
	Net Income	$   2,82,000
b.	Crane Company
	CVP Income Statement
	For the month ended 2020
		Total	Per unit
		(i) X 64050	(i)
	Sales	$ 15,75,630	$        24.60
Less:	Variable cost	$   7,17,360	$        11.20
	Contribution	$   8,58,270	$        13.40
Less:	Fixed cost	$   5,40,000
	Net Income	$   3,18,270
	Workings:
	Number of units sold	=	61000 X 105%
		=	64050
	Unit selling Price	=	$26 - ($2.8/2)
		=	$        24.60
Less:	Unit variable cost	=	$14 - $2.8
		=	$        11.20
	Fixed cost	=	$450000 + $90000
		=	$ 5,40,000

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