Question

Problem 05-4A Break-even analysis; income targeting and forecasting LO C2, P2, A1 [The following information applies to the questions displayed below.] Astro Co. sold 19,200 units of its only product and incurred a $43,072 loss (ignoring taxes) for the current year, 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 $142,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 Sales $ 704,640 Variable costs 563,712 Contribution margin 140,928 Fixed costs 184,000 Net loss $ (43,072 )

1.Compute the break-even point in dollar sales for 2019. (Round your answers to 2 decimal places.)

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. (Round your answers to 2 decimal places.)

Answer 1