Question

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

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.

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Answer #1

In the books of Booth Company

Projected CVP Income statement for 2020

Particulars Amount($)
A Estimated No. of units sold (67800+4%) 70512 units
B Estimated Selling price per unit [25-(3*2/3)] $23
C Sales (A*B) 1621776
D Variable cost (70512 * (15-3)) (846144)
E Contribution (C-D) 775632
F Estimated Fixed Cost (482000 + 115000) (597000)
G Profit (E-F) 178632

Current Selling price per unit ($) = Sales/No of units

= 1695000 / 67800

= $25 per unit

Current Variable cost for unit ($) = Variable cost / No . of units

= 1017000/67800

= 15

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