Question

Exercise 22-14 Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs totaled $900,000, and fixed costs totaled $500,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $3). However, to process the new raw material, fixed operating costs will increase by $100,000. Management feels 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 5% increase in the number of units sold. Prepare a projected CVP income statement for 2017: (a) assuming the changes have not been made. CAREY COMPANY CVP Income Statement Total Per Unit $ $ $ $ (b) assuming that changes are made as described. (Round per unit to 2 decimal places, e.g. 15.25.) CAREY COMPANY CVP Income Statement Total Per Unit $ $ $ $ LINK TO TEXT Question Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

Answer 1

(1)

Prepare a projected CVP income statement for 2017

(a) Assuming the changes have not been made,

CAREY COMPANY
CVP Income Statement
For the Year Ended December 31, 2017
	Total	Per Unit
Sales (60,000 X $26)	$1,560,000	$26
Variable costs (60,000 X $15)	?? 900,000	?15
Contribution margin (60,000 X $11)	?? 660,000	$11
Fixed costs	?? 500,000
Net income	$? 160,000

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(b) Assuming that changes are made as described.

CAREY COMPANY
CVP Income Statement
For the Year Ended December 31, 2017
	Total	Per Unit
Sales [(60,000 X 105%) X $24.50]	$1,543,500	$24.50
Variable costs (63,000 X $12.00)	?? 756,000	?12.00
Contribution margin (63,000 X $12.50)	?? 787,500	$12.50
Fixed costs ($500,000 + $100,000)	?? 600,000
Net income	$? 187,500

Working notes for the above answer is as under

New sales price

=$26.00 – ($3 X 50%)

= $24.50.

New Variable cost

=15.00 – ($15 X 20%)

= $12.00.