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Astro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2018's activities, the production manager notes that variable costs ca be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company mus increase its annual fixed costs by $200,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2017 Sales Variable costs Contribution margin Fixed costs Net loss.. $1,000,000 800.000 200,000 250,000 $ 150,000 Required 1. Compute the break-even point in dollar sales for year 2017. 2. Compute the predicted break-even point in dollar sales for year 2018 assuming the machine is installed and there is no change in the unit selling price. 3. Prepare a forecasted contribution margin income statement for 2018 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due. Check (3) Net income, $150,000 4. Compute the sales level required in both dollars and units to earn $200,000 of target pretax income in 2018 with the machine installed and no change in unit sales price. Round answers to whole dollars and whole units. (4) Required sales, $1,083,333 or 21,667 units (both rounded) 5. Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due. Part 1 2017 break-even in sales dollars = Note: Use the equation in Exhibit 18.12 Part 2 2018 break-even in sales dollars = Note: Use the equation in Exhibit 18.12 with predicted numbers Remember to compute contribution margin ratio Part 3 ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 Sales Variable costs Contribution margin Fixed costs Income before income taxes Part 4 Note: Use equations in Exhibits 18.22 and 18.23 with predicted numbers Required Sales in Dollars = (rounded to whole dollars) Required Sales in Units = (rounded to whole units) Part 5 ASTRO COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2018 Sales Variable costs Contribution margin Fixed costs (from part 2) Income before income taxes

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