Malone Company had sales in 2014 of $1600000 on 80000 units. Variable costs totaled $960000 and fixed costs totaled $400000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However to process the new raw material fixed operating costs will increase by $40000. 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.
Instructions
Prepare a CVP income statement for 2014 assuming the changes are made as described.

Question

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The Answer of Malone Company had sales in 2014 of $1600000 on 80000 units. Variable costs totaled $960000 and fixed costs totaled $400000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However to process the new raw material fixed operating costs will increase by $40000. 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.
Instructions
Prepare a CVP income statement for 2014 assuming the changes are made as described.

Malone Company Had Sales in 2014 of $1600000 on 80000