Carey Company had sales in 2016 of $1,831,200 on 65,400 units. Variable costs to
ID: 2448132 • Letter: C
Question
Carey Company had sales in 2016 of $1,831,200 on 65,400 units. Variable costs totaled $1,046,400, and fixed costs totaled $450,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $3.20). However, to process the new raw material, fixed operating costs will increase by $96,000. 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.
(a) Prepare a projected CVP income statement for 2017, assuming the changes have not been made. (Round per unit cost to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 1,225.)
(b) Prepare a projected CVP income statement for 2017, assuming that changes are made as described. (Round per unit cost to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 1,225.)
CAREY COMPANY
CVP Income Statement
December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
$
$
Administrative ExpensesVariable CostsTotal Variable ExpensesSalesContribution MarginNet Income/(Loss)Selling ExpensesCost of Goods SoldFixed CostsGross ProfitTotal Fixed Expenses Fixed CostsContribution MarginCost of Goods SoldTotal Fixed ExpensesNet Income/(Loss)Administrative ExpensesTotal Variable ExpensesSalesSelling ExpensesVariable CostsGross Profit$
Selling ExpensesTotal Fixed ExpensesTotal Variable ExpensesAdministrative ExpensesFixed CostsVariable CostsCost of Goods SoldGross ProfitContribution MarginNet Income/(Loss)Sales Variable CostsGross ProfitCost of Goods SoldAdministrative ExpensesContribution MarginSalesSelling ExpensesFixed CostsNet Income/(Loss)Total Fixed ExpensesTotal Variable Expenses$
Explanation / Answer
Solution:
a.)
2.
Working Notes -
1. Fixed Cost = $ 450,000 + $ 96,000 = $ 546,000
2. Increased Units in Sales = 65,400 + 5 % * 65,400 = 68,670
3. Variable cost after reduction = $ 16 - $ 3.20 = $ 12.80
4. Reduced Sales price = $ 28 - $ 3.2/2 = $ 26.40
CAREY COMPANY CVP Income Statement Total Per Unit Sales 1,831,200 28 Less: Variable cost 1,046,400 16 Contribution 784,800 12 Less: Fixed Cost 450,000 Net Income 334,800