Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable...
Blanchard Company manufactures a single product that sells for
$120 per unit and whose total variable costs are $90 per unit. The
company’s annual fixed costs are $624,000. The sales manager
predicts that annual sales of the company’s product will soon reach
39,400 units and its price will increase to $194 per unit.
According to the production manager, variable costs are expected to
increase to $134 per unit, but fixed costs will remain at $624,000.
The income tax rate is 25%. What amounts of pretax and after-tax
income can the company expect to earn from these predicted
changes?
Prepare a forecasted contribution margin income statement.
Homework Answers
| Units | Per unit | ||
| Sales | 39,400 | $194 | $7,643,600 |
| Variable cost | 39,400 | $134 | $5,279,600 |
| Contribution margin | 39,400 | $60 | $2,364,000 |
| Fixed cost | $624,000 | ||
| Pre tax operating income | $1,740,000 | ||
| Tax @ 25% | $435,000 | ||
| After tax operating income | $1,305,000 |
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