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A new raw material is available that will decrease the variable costs per unit by 20% (or $2.80). However, to process the new raw material, fixed operating costs will increase by $90,000. 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 department expects that this sales price reduction will result in a 5% increase in the number of units sold.

Required:
a. Prepare a projected CVP income statement for 2020, assuming the changes have not been made.
b. Prepare a projected CVP Statement 2020, assuming that changes are made as described.

Respuesta :

Tundexi

Answer:

Missing words "Carey Company had sales in 2016 of $1,586,000 on 61,000 units. Variable costs totaled $854,000, and fixed costs totaled $450,000"

a. Particulars            Total Amount($)   Per Unit in ($)

Sales                          1,586,000                   26

Less: Variable cost    854,000                     14

Contribution Margin  732,000                      12

Less: Fixed cost         450,000                      -

Profit                           282,000

b. Sales = 61000 + 5% = 61000 + 3050 =  64050 units

Sales price = $26 - ($2.8/2) $1.4 = $24.6

Variable price = $14 - $2.8 = $11.2

Fixed cost = 450000 + 90000 = 540000

Particulars            Total Amount($)   Per Unit in ($)

Sales                          1,575,630                   24.6

Less: Variable cost     717,360                      11.2

Contribution Margin  858,270                      13.4

Less: Fixed cost         540,000                      -

Profit                           318,270

With this new plan, the profit increases by $26,270 ($318,270 - $282,000)

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