Question

Volmar Company had sales in 2020 of $1,602,000 on 53,400 units. Variable costs totalled $534,000, and fixed costs totalled $911,400.

A new raw material is available that will decrease the variable costs per unit by 20% (or $2.00). However, to process the new raw material, fixed operating costs will increase by $43,500. Management feel that one half 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 10% increase in the number of units sold.

Prepare a CVP income statement for 2020: (Round per unit cost to 2 decimal places, e.g. 15.25.)

(a) Assuming the changes have not been made:

VOLMAR COMPANY CVP Income Statement (Unchanged)                                                           December 31, 2020For the Month Ended December 31, 2020For the Year Ended December 31, 2020
		Total		Per Unit
Operating incomeFixed costsContribution marginVariable costsSales		$		$
Fixed costsContribution marginSalesVariable costsOperating income
SalesContribution marginFixed costsVariable costsOperating income				$
Fixed costsContribution marginVariable costsSalesOperating income
SalesContribution marginOperating incomeFixed costsVariable costs		$

(b) Assuming that changes are made as described.

VOLMAR COMPANY CVP Income Statement (with changes)                                                           December 31, 2020For the Month Ended December 31, 2020For the Year Ended December 31, 2020
		Total		Per Unit
Fixed costsContribution marginOperating incomeVariable costsSales		$		$
Operating incomeVariable costsSalesFixed costsContribution margin
Operating incomeVariable costsFixed costsSalesContribution margin				$
Contribution marginSalesVariable costsOperating incomeFixed costs
Contribution marginOperating incomeSalesFixed costsVariable costs		$

Answer 1