[The tollowing Astro Co. sold 20,800 units of its only product and incurred a $56,672 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $158,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $796,640 637,312 159,328 • 216,000 Sales Variable costs Contribution margin Fixed costs Net loss $(56,672)

[The tollowing Astro Co. sold 20,800 units of its only product and incurred a $56,672 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $158,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $796,640 637,312 159,328 • 216,000 Sales Variable costs Contribution margin Fixed costs Net loss $(56,672)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Last year Minden Company introduced a new product and sold 25,700 units of it at a price of $100 per unit. The product's variable expenses are $70 per unit and its fixed expenses are $838,200 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What…
Magnificent Modems has excess production capacity and is considering the possibility of making and selling security tokens. The following estimates are based on a production and sales volume of 1,000 security tokens. Unit-level manufacturing costs are expected to be $20. Sales commissions will be established at $1 per unit. The current facility-level costs, including depreciation on manufacturing equipment ($60,000), rent on the manufacturing facility ($50,000), depreciation on the administrative equipment ($12,000), and other fixed administrative expenses ($71,950), will not be affected by the production of the security tokens. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (security tokens) on the basis of the number of units of product made (i.e., 5,000 modems and 1,000 security tokens). Required a. Determine the per-unit cost of making and selling 1,000 security tokens. Note: Do not round intermediate…
Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $510,000. The company estimates that it will sell 773,000 units per year for $3.05 per unit and variable non-labor costs will be $1.09 per unit. Production will end after year 3. New equipment costing $1.01 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $302,000. The new product will require the working capital to increase to a level of $387,000 immediately, then to $399,000 in year 1, in year 2 the level will be $341,000, and finally in year 3 the level will return to $302,000. Your tax rate is 21%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year…
Astro Company sold 22,000 units of its only product and reported income of $70,200 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 46% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $154,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($54 per unit) Variable costs ($48 per unit) Contribution margin Fixed costs Income Sales level required in dollars Numerator: 3. Compute the sales level required in both dollars and units to earn $240,000 of target income for next year with the machine installed. (Do not round intermediate calculations. Round your answers to 2 decimal places. Round "Contribution margin ratio" to nearest whole percentage) Sales level required in units Numerator: $ 1,188,000 1,056,000 1…
Last year Minden Company introduced a new product and sold 25,800 units of it at a price of $95 per unit. The product's variable expenses are $65 per unit and its fixed expenses are $836,100 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3…
Sheridan Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $480,000. variable expenses of $363,000, and fixed expenses of $144,000. Therefore, the gloves and mittens line had a net loss of $27,000. If Sheridan eliminates the line, $36,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg. (45))
Waterways is considering the replacement of an antiquated machine that has been slowing down production because of breakdowns and added maintenance. The operations manager estimates that this machine still has 2 more years of possible use. The machine produces an average of 60.00 units per day at a unit cost of $6.80, whereas other similar machines are producing twice that much. The units sell for $9.00. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $71,940 and have a 2-year life. Given the information above, what are the consequences of Waterways replacing the machine that is slowing down production because of breakdowns? Replacing the machine will result in a net loss of $ . Waterways should keep the old i
Interchange Inc. had sales of $400,000, based on a unit selling price of $200. The variable cost per unit was $175, and fixed costs were $75,000. The maximum sales within Interchange Inc.’s relevant range are 2,750 units. Interchange Inc. is considering a proposal to spend an additional $32,750 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity.a. Construct a cost-volume-profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation. b. Using the cost-volume-profit chart prepared in part (1), determine (A) the income from operations for last year and (B) the maximum income from operations that could have been realized during the year. Verify your answers using the mathematical approach to cost-volume-profit analysis. c. Construct a cost-volume-profit chart indicating the break-even sales for the current year, assuming that a noncancellable contract is signed for the additional…
Gibson Modems has excess production capacity and is considering the possibility of making and selling paging equipment. The following estimates are based on a production and sales volume of 1,800 pagers.Unit-level manufacturing costs are expected to be $28. Sales commissions will be established at $1.80 per unit. The current facility-level costs, including depreciation on manufacturing equipment ($68,000), rent on the manufacturing facility ($58,000), depreciation on the administrative equipment ($14,400), and other fixed administrative expenses ($75,950), will not be affected by the production of the pagers. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (pagers) on the basis of the number of units of product made (i.e., 5,800 modems and 1,800 pagers).Requireda. Determine the per-unit cost of making and selling 1,800 pagers. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Required: 1-a. Complete the following table showing the totals. Current (no automation) 81,000 Proposed (automation) 128,000 units units Per Unit $94 $ 17 30 9 56 $38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $ ? ? 2,200,000 ?
Required information (The following information applies to the questions displayed below] Astro Company sold 25,000 units of its only product and reported income of $117,600 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 $149,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Incone Statenent For Year Ended December 31 Sales ($40 per unit) $ 1,000,000 800,000 Variable costs ($32 per unit) Contribution margin Fixed costs 200,000 82,400 Incone $ 117,600 ces 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. (Do not round intermediate calculations. Round your answers to the nearest whole dollar.) ASTRO…
Valero Company had sales in 2016 of $1,800,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $570,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However, to process the new raw material, fixed operating costs will increase by $50,000. 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 depart ment expects that this sales price reduction will result in a 10% increase in the number of units sold. Instructions a) Prepare a CVP income statement for 2017, assuming the changes are made as described.