Question

Booth Company had sales in 2020 of $1,695,000 on 67,800 units. Variable costs totaled $1,017,000 and fixed costs totaled $482,000.

A new raw material is available that will decrease the variable costs per unit by 20% (or $3.00). However, to process the new raw material, fixed operating costs will increase by $115,000. Management feels that two-thirds 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 4% increase in the number of units sold.

Prepare a projected CVP income statement for 2020 assuming that changes are made as described.
CVP INCOME STATEMENT

Sales:

Variable Costs:

Contribution Margin:

Less Fixed Costs:

Net Income:

Answer 1

Ans: Income Statement assuming changes have been made:

Particulars	Amount($)
Sales {67,800*104%): 70,512*25*80%	1,410,240
less: Variable Costs (70,512*12)	846,144
Contribution Margin {Sales-Variable Cost}	564,096
Less: Fixed Costs:(482,000+115,000)	597,000
Loss(Contribution Margin-Fixed Costs)	32,904

Selling Price= 1,695,000/67,800= $25

variable Price= 1,017,000/67,800= $15

As given ,two-thirds of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction therefore New Sales price will be reduced by 20%