Carey Company had sales in 2016 of $1,716,000 on 66,000 units. Variable costs totaled $1,188,000, and fixed costs totaled $473,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $3.60). 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 the 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.

Question

Abdiel Summers

Business

2 March, 09:11

Carey Company had sales in 2016 of $1,716,000 on 66,000 units. Variable costs totaled $1,188,000, and fixed costs totaled $473,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $3.60). 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 the 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.

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Jamal Bradley · Answer 1

Instructions are listed below.

Explanation:

Giving the following information:

Carey Company had sales in 2016 of $1,716,000 on 66,000 units. Variable costs totaled $1,188,000, and fixed costs totaled $473,000.

Contribution format income statement:

Sales = 1,716,000

Variable costs = 1,188,000

Contribution margin = 528,000

Fixed costs = 473,000

Net operating income = 55,000