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Astro Company sold 20,000 units of its only product and reported income of $25,000 for the current year. During a planning session for next year'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 $241,000. The selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($50 per unit) Variable costs ($40 per unit) Contribution margin Fixed costs Income $1,000,000 800,000 200,000 175,000 $ 25,000

Astro Company sold 20,000 units of its only product and reported income of $25,000 for the current year. During a planning session for next year'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 $241,000. The selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($50 per unit) Variable costs ($40 per unit) Contribution margin Fixed costs Income $1,000,000 800,000 200,000 175,000 $ 25,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required information [The following information applies to the questions displayed below.) Astro Company sold 20,000 units of its only product and reported income of $25,000 for the current year. During a planning session for next year'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 $241,000. The selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($50 per unit) Variable costs ($40 per unit) Contribution margin. Fixed costs Income 1. Compute the break-even point in dollar sales for next year assuming the machine is installed. Contribution Margin Per Unit Sales Variable costs Contribution margin Contribution Margin Ratio Numerator: Contribution margin per unit Contribution margin 。 e e Denominator: Selling price per unit 10 $ Break-Even Point in Dollar Sales with New Machine: Numerator: Fixed costs per unit ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales level required in dollars Numerator: • Sales level required in units Ⓡ 175,000/ Numerator: $ $1,000,000 800,000 200,000 175,000 $ 25,000 $ 1 1 Answer is complete but not entirely correct. Proposed 1 1 0 0 50 40 10 50 Denominator: Contribution margin ratio ✪ = 2. Prepare a contribution margin income statement for next year that shows the expected results with the machine installed. Assume sales are $1,000,000. Denominator: Denominator: ✔ 20% Per unit Per unit Per unit = W 3. Compute the sales level required in both dollars and units to earn $208,000 of target income for next year with the machine installed. $ Contribution Margin Ratio Contribution margin ratio Break-Even Point in Dollars. Break-even point in dollars 20% Sales dollars required 875,000 Sales units required
Transcribed Image Text:Required information [The following information applies to the questions displayed below.) Astro Company sold 20,000 units of its only product and reported income of $25,000 for the current year. During a planning session for next year'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 $241,000. The selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($50 per unit) Variable costs ($40 per unit) Contribution margin. Fixed costs Income 1. Compute the break-even point in dollar sales for next year assuming the machine is installed. Contribution Margin Per Unit Sales Variable costs Contribution margin Contribution Margin Ratio Numerator: Contribution margin per unit Contribution margin 。 e e Denominator: Selling price per unit 10 $ Break-Even Point in Dollar Sales with New Machine: Numerator: Fixed costs per unit ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales level required in dollars Numerator: • Sales level required in units Ⓡ 175,000/ Numerator: $ $1,000,000 800,000 200,000 175,000 $ 25,000 $ 1 1 Answer is complete but not entirely correct. Proposed 1 1 0 0 50 40 10 50 Denominator: Contribution margin ratio ✪ = 2. Prepare a contribution margin income statement for next year that shows the expected results with the machine installed. Assume sales are $1,000,000. Denominator: Denominator: ✔ 20% Per unit Per unit Per unit = W 3. Compute the sales level required in both dollars and units to earn $208,000 of target income for next year with the machine installed. $ Contribution Margin Ratio Contribution margin ratio Break-Even Point in Dollars. Break-even point in dollars 20% Sales dollars required 875,000 Sales units required
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