Question

'sales in 2019 of $1780600 on 61400 units. Variable costs totaled $859600, and fixed costs totaled $490000. A new raw material is available that will decrease the variable costs per unit by 20% for $280]. However, to process the new raw material, foxed operating costs will increase by $101000. 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. CORONADO COMPANY CVP Income Statement For the Year Ended December 31, 2020 Total Per Unit Variable Costs Contribution Margin Foxed Costs

a.) Prepare a projected CVP Income Statement for 2020, assuming the changes have not been made.

b.) Prepare a projected CVP income statement for 2020, assuming that changes are made.

Answer 1

a) Income statement - No changes made

Particulars	Total ($)	Per Unit ($)
Sales	1780,600	29 (1780600/61400)
Less: Variable Costs	(859,600)	(14) (1780600/ 61400)
Contribution Margin	921,000	15
Less: Fixed Costs	(490,000)
Net income	431,000	7.02

b) Income statement - After Changes

Revised Variable Cost per unit = $14 - $ 2.80 = $ 11.20

Fixed Costs = $490,000 + $ 101,000 = $ 591,000

Revised Sales price per unit = $ 29 - $ 1.4 = $ 27.60

Revised no. of units = 61,400 + 5 % = 64,470

CVP Income Statement - After Changes

Particulars	Total ($)	Per Unit ($)
Sales	17,79,372 (64470 * $27.6)	27.60
Less: Variable Costs	(722,064)	11.2
Contribution Margin	10,57,308
Less: Fixed Costs	(591,000)
Net income	466,308	7.23