Compute the predicted break-even point in dollar sales

Reference no: EM132221745

Question - Break-even analysis; income targeting and forecasting

Astro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current years, 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 $200,000. The maximum output capacity of the company is 40,000 units per year.

Contribution Margin Income Statement For Year Ended December 31, 2019
Sales	$1,000,000
Variable costs	800,000
Contribution margin	200,000
Fixed costs	250,000
Net loss	$(50,000)

Required -

1. Compute the break-even point in dollar sales for 2019.

2. Compute the predicted break-even point in dollar sales for 2020 assuming the machine is installed and there is no change in the unit selling price.

3. Prepare a forecasted contribution margin income statement for 2020 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due.

4. Compute the sales level required in both dollars and units to earn $200,000 of target pretax income in 2020 with the machine installed and no change in unit sales price. Round answers to whole dollars and whole units.

5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due.

Reference no: EM132221745

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