A new raw material is available that will decrease the
Course:- Accounting Basics
Reference No.:- EM13601440

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Maddox Company had sales in 2010 of $1,200,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $400,000.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 department expects that this sales price reduction will result in a 5% increase in the number of units sold.

Instructions: Prepare a CVP income statement for 2010, assuming the changes are made as described.

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