Question

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $126 per unit. The company’s annual fixed costs are $842,400. Management targets an annual pretax income of $1,350,000. Assume that fixed costs remain at $842,400.

	(1) Compute the unit sales to earn the target income. Choose Numerator: / Choose Denominator: = Units to Achieve Target / = Units to achieve target (2) Compute the dollar sales to earn the target income. Choose Numerator: / Choose Denominator: = Dollars to Achieve Target / = Dollars to achieve target

Blanchard Company manufactures a single product that sells for $200 per unit and whose total variable costs are $182 per unit. The company’s annual fixed costs are $637,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,700 units and its price will increase to $207 per unit. According to the production manager, variable costs are expected to decrease to $147 per unit, but fixed costs will remain at $637,000. The income tax rate is 30%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

Prepare a forecasted contribution margin income statement.

	BLANCHARD COMPANY Forecasted Contribution Margin Income Statement Units $ per unit Contribution margin

Answer 1

Contribution Margin per unit = $180-126 = $54 per unit
Contribution Margin Ratio = $54 / 180 = 30%

(1)
Unit sales to earn target income = (Fixed Costs + Target Income) / Contribution Margin per unit
= ($842400+1350000)/54 = 40600 units

(2)
Dollar sales to earn target income = (Fixed Costs + Target Income) / Contribution Margin Ratio
= ($842400+1350000)/30% = $7308000

	BLANCHARD COMPANY Forecasted Contribution Margin Income Statement

	Units	Per unit	Dollars
Sales Revenue	40700	$               207	$    84,24,900
Variable Manufacturing Cost	40700	$               147	$    59,82,900
Contribution Margin	40700	$                 60	$    24,42,000
Fixed Costs			$      6,37,000
Net Operating Income (Pretax)			$    18,05,000
Income Tax Expense			$      5,41,500
Net Income (After tax)			$    12,63,500