Question

[The following information applies to the questions displayed below.]

Astro Co. sold 19,700 units of its only product and incurred a $59,290 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2016’s activities, the production manager notes that variable costs can be reduced 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $147,000. The maximum output capacity of the company is 40,000 units per year.

  

ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2015
Sales		$	732,840
Variable costs			549,630
Contribution margin			183,210
Fixed costs			242,500
Net loss		$	(59,290	)

6.

value:
1.00 points

Required information

Required:
1.	Compute the break-even point in dollar sales for year 2015. (Round your answers to 2 decimal places.)

    

rev: 11_23_2015_QC_CS-33693, 09_06_2017_QC_CS-97959

References

eBook & Resources

Expanded tableLearning Objective: 18-A1 Compute the contribution margin and describe what it reveals about a company's cost structure.Learning Objective: 18-P2 Compute the break-even point for a single product company.

Difficulty: 3 HardLearning Objective: 18-C2 Describe several applications of cost-volume-profit analysis.

Check my work

7.

value:
1.00 points

Required information

2.	Compute the predicted break-even point in dollar sales for year 2016 assuming the machine is installed and there is no change in the unit selling price. (Round your answers to 2 decimal places.)

    

rev: 11_03_2015_QC_CS-32169

References

eBook & Resources

Expanded tableLearning Objective: 18-A1 Compute the contribution margin and describe what it reveals about a company's cost structure.Learning Objective: 18-P2 Compute the break-even point for a single product company.

Difficulty: 3 HardLearning Objective: 18-C2 Describe several applications of cost-volume-profit analysis.

Check my work

8.

value:
1.00 points

Required information

3.	Prepare a forecasted contribution margin income statement for 2016 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

     

References

eBook & Resources

Expanded tableLearning Objective: 18-A1 Compute the contribution margin and describe what it reveals about a company's cost structure.Learning Objective: 18-P2 Compute the break-even point for a single product company.

Difficulty: 3 HardLearning Objective: 18-C2 Describe several applications of cost-volume-profit analysis.

Check my work

9.

value:
1.00 points

Required information

4.	Compute the sales level required in both dollars and units to earn $170,000 of target pretax income in 2016 with the machine installed and no change in unit sales price. (Do not round intermediate calculations. Round your answers to 2 decimal places. Round "Contribution margin ratio" to nearest whole percentage)

     

References

eBook & Resources

Expanded tableLearning Objective: 18-A1 Compute the contribution margin and describe what it reveals about a company's cost structure.Learning Objective: 18-P2 Compute the break-even point for a single product company.

Difficulty: 3 HardLearning Objective: 18-C2 Describe several applications of cost-volume-profit analysis.

Check my work

10.

value:
1.00 points

Required information

5.	Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due. (Do not round intermediate calculations. Round "per unit answers" to 2 decimal places and other answers to nearest whole dollar.)

     

Answer 1

Answer 1.

2015:

Units sold = 19,700

Selling Price per unit = Sales / Units sold
Selling Price per unit = $732,840 / 19,700
Selling Price per unit = $37.20

Variable Cost per unit = Variable Costs / Units sold
Variable Cost per unit = $549,630 / 19,700
Variable Cost per unit = $27.90

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $183,210 / $732,840
Contribution Margin Ratio = 25%

Breakeven Point in dollar sales = Fixed Costs / Contribution Margin Ratio
Breakeven Point in dollar sales = $242,500 / 0.25
Breakeven Point in dollar sales = $970,000.00

Answer 2.

2016:

Selling Price per unit = $37.20

Variable Cost per unit = $27.90 - 40% * $27.90
Variable Cost per unit = $16.74

Fixed Costs = $242,500 + $147,000
Fixed Costs = $389,500

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $37.20 - $16.74
Contribution Margin per unit = $20.46

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $20.46 / $37.20
Contribution Margin Ratio = 55%

Breakeven Point in dollar sales = Fixed Costs / Contribution Margin Ratio
Breakeven Point in dollar sales = $389,500 / 0.55
Breakeven Point in dollar sales = $708,181.82

Answer 3.

sales (19,700 $37.20) Variable costs (19,700 Contribution margin Fixed costs Net income 732840 329778 403062 389500 13562 $16.74)

Answer 4.

Required Sales in dollars = (Fixed Costs + Target Profit) / Contribution Margin Ratio
Required Sales in dollars = ($389,500 + $170,000) / 0.55
Required Sales in dollars = $1,017,272.73

Required Sales in units = (Fixed Costs + Target Profit) / Contribution Margin per unit
Required Sales in units = ($389,500 + $170,000) / $20.46
Required Sales in units = 27,346.04

Answer 5.