Sunland Company had sales in 2021 of $1,410,000 on 60,000 units. Variable costs totaled $846,000, and fixed costs totaled $470,000. A new raw material is available that will decrease the unit variable costs by 20% (or $2.82). However, to process the new raw material, fixed operating costs will increase by $94,000. Management feels that one half of the decline in the unit variable costs 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 2022, assuming the changes have not been made.
Sunland Company had sales in 2021 of $1,410,000 on 60,000 units. Variable costs totaled $846,000, and fixed costs totaled $470,000.
A new raw material is available that will decrease the unit variable costs by 20% (or $2.82). However, to process the new raw material, fixed operating costs will increase by $94,000. Management feels that one half of the decline in the unit variable costs 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 2022, assuming the changes have not been made.
b) Prepare a projected CVP income statement for 2022, assuming that changes are made as described.
4(L)