Astro Co – Breakeven analysis
Astro Co – Breakeven analysis
Astro Co. sold 23,000 units of its only product and incurred a $57,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2014’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 $210,000. The maximum output capacity of the company is 40,000 units per year.
ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2013  
Sales  $  1,035,000  
Variable costs  828,000  
Contribution margin  207,000  
Fixed costs  264,000  
Net loss  $  (57,000  )  
2. Compute the breakeven point in dollar sales for year 2013.
3. Compute the predicted breakeven point in dollar sales for year 2014 assuming the machine is installed and there is no change in the unit sales price.
4. Prepare a forecasted contribution margin income statement for 2014 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold will not change, and no income taxes will be due.
5. Compute the sales level required in both dollars and units to earn $189,000 of aftertax income in 2014 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.
6. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%.
