For this problem, you will focus on break-even analysis and income targeting and forecasting. This includes practicing how to compute the break-even point and prepare a forecasted contribution margin income statement. Complete problem 18-4A on page 807 in your custom textbook. There is no template for this assignment. Use a Word document to complete your work. (Problem Attached)
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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 2014â??s activities, the production manager
notes that variable costs can be reduced 50% by installing a machine that automates several operations.
To obtain these savings, the company must increase its annual fixed costs by $200,000. The maximum
output capacity of the company is 40,000 units per year.
1. Compute the break-even point in dollar sales for year 2013.
2. Compute the predicted break-even point in dollar sales for year 2014 assuming the machine is
installed and there is no change in the unit sales price.
3. Prepare a forecasted contribution margin income statement for 2014 that shows the expected results
with the machine installed. Assume that the unit sales price and the number of units sold will not
change, and no income taxes will be due.
4. Compute the sales level required in both dollars and units to earn $140,000 of after-tax income in
2014 with the machine installed and no change in the unit sales price. Assume that the income tax rate
is 30%. (Hint: Use the procedures in Exhibits 18.22 and 18.23.) (Round answers to whole dollars or
5. Prepare a forecasted contribution margin income statement that shows the results at the sales level
computed in part 4. Assume an income tax rate of 30%.
(3) Net income, $150,000
(4) Required sales, $1,083,333 or 21,667 units
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