Carey Company had sales in 2016 of $1,803,200 on 64,400 units. Variable costs to
ID: 2448203 • Letter: C
Question
Carey Company had sales in 2016 of $1,803,200 on 64,400 units. Variable costs totaled $901,600, and fixed costs totaled $478,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $2.80). However, to process the new raw material, fixed operating costs will increase by $108,000. 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.)
Explanation / Answer
a) No change (64,400 units)
Total Per unit
2)
Variable Cost will decrease by 20%. Therefore, new variable cost = $901,600 – (20% of $901,600) = $721,280
Selling Price decrease by $28.00 x $2.80 x 0.5 = $26.60
Sales Volume will increase by 5% with decrease in selling price. New Sales Volume = (64,400 units + 5% of 64,400 units = 67,620 unit
b) With change (67,620 units)
Total Per unit