Teller Co. sold 20,900 units of its only product and incurred a $71,860 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012’s activities, the production manager notes that variable costs can be reduced 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $159,000. The maximum output capacity of the company is 40,000 units per year.
Contribution Margin Income Statement
For Year Ended December 31, 2011
Variable Cost 601920
Contribution Margin 200640
Fixed Costs 272500
Net Loss (71860)
Prepare a forecasted contribution margin income statement for 2012 that shows the expected results with the machine installed. Assume that the unit sales price and the number of units sold (20,900 units) will not change, and no income taxes will be due
Compute the sales level required in both dollars and units to earn $203,000 of after-tax income in 2012 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.
Sales level required in dollars $1311819
Sales level required in units 34162 units
Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume an income tax rate of 30%. (Use the units in your answer from Part 4 in your calculation of Sales and Variable Cost. Your Net Income might be higher than required amount due to rounding. Input all amounts as positive values. Round your “Sales level required in units” to nearest whole number. Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number. Omit the “$” sign in your response.)