Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4.


Screenshot 2024 01 12 140652

Screenshot 2024 01 12 140652

Step 1 of 2

According to question, Astro sold $20,000 units of its only product and incurred a $50,000 loss ignoring taxes for the current year as shown here and the production manager notes that variable cost can be reduced 50% by installing a machine that automates several operations, during a planning session for year 2016’s activities and to obtained these savings the company must increase its annual fixed costs by $200,000.

A forecasted contribution margin income statement that shows the result at the sales level, is to be prepared assuming the income tax will be due.

Explanation:

Considering the proposed changes that includes variable cost reducing50% by installing a machine, increasing in annual fixed costs by $200,000, forecasted contribution margin income statement is to be prepared.

 

Step 2 of 2

According to the given contribution margin income statement for December 31, 2015-

1 . Current sales level:$1,000,000

2 .Variable costs at current sales level: $800,000

3 .Contribution margin at current sales level: $200,000

4 .Fixed costs:$250,000

5 Net loss: ($50,000)

After considering the proposed changes –

1) Variable costs reduced by 50% with the automated machine:

Variable costs after reduction:$800,000×0.5=$400,000

2) Fixed costs increase by $200,000

New fixed costs: $250,000+$200,000=$450,000

Now the forecasted contribution margin income statement is as follows –

“ASTRO”
forecasted contribution margin income statement
for the year ended December 31, 2016
Amount
Sales $1,000,000
-Variable costs $400,000
Contribution Margin $600,000
– Fixed costs $450,000
Net income before taxes $150,000

Note :The statement is prepared assuming that the sales level remain the same as in  2,015.Because any changes in sales volume will affect the final net income before tax.

Explanation:

The forecasted contribution margin income statement is prepared based on the proposed changes of reducing variable cost by $50% and increasing in fixed cost by$200,000 . these changes are estimated and the net income is for before tax because tax is not given.

 

Final solution

The forecasted contribution margin income statement at a new sales level would show a net profit of $150,000

 

 

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