Question

Required Information (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 2018's activities, the production manager notes that varlable costs can be reduced 40% by iInstalling 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 AвтRо сокраY Contribution Margin Incone Statement Tor Tear Hnded December 31, 2017 $732,840 549,630 183,210 242,500 $(59,290) Sales Variable costs Contribution nargin Tixed eosta Net loas 3. Prepare a forecasted contribution margin income statement for 2018 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 the nearest whole dollar) ASTRO COMPANY Forecasted Contribution Margin Inceme Statement For Year Ended December 31, 2018 Contribution margin ( Prev of 10 Next> т G н х

Answer 1

CURRENT SCENARIO Units sold Particulars Sales Less: Variable costs Contribution margin Less: Fixed costs Net profit/(loss) 19,700 ADET Per unit Total 37.20 7,32,840 -27.90 -5,49,630 9.30 1,83,210 -2,42,500 Per-59,290 PROPOSED SCENARIO Units sold Particulars Sales Less: Variable costs (27.90 - 40%*27.90) Contribution margin Less: Fixed costs (2,42,500 +1,47,000) Net profit/(loss) 19,700 Per unit 37.20 16.74 20.46 Total 7,32,840 -3,29,778 4,03,062 -3,89,500 13,562 CONCLUSION - It is pretty clear from the above analysis that the contribution margin per unit and in total has increased as a result of installation of new automatic machine, thus, improving the profitability position of the company from the existing loss of $59,290 to a net profit of $13,562. Therefore, the new machine should be installed.