Question

Blanchard Company manufactures a single product that sells for $160 per unit and whose total variable costs are $120 per unit. The company’s annual fixed costs are $629,000. The sales manager predicts that annual sales of the company’s product will soon reach 39,900 units and its price will increase to $199 per unit. According to the production manager, variable costs are expected to increase to $139 per unit, but fixed costs will remain at $629,000. The income tax rate is 25%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

Prepare a forecasted contribution margin income statement.

Answer 1

Contribution margin income statement

Sales (39,900 x 199)	7,940,100
Variable cost (39,900 x 139)	-5,546,100
Contribution margin	2,394,000
Fixed cost	-629,000
Pretax income	1,765,000
Income tax expense (1,765,000 x 25%)	-441,250
After tax income	$1,323,750

Pretax income = $1,765,000

After tax income = $1,323,750

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