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Astro Company sold 20,000 units of its only product and reported income of $25,000 for the current year. During a planning session for next years activities, the production manager notes that variable costs can be reduced 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $241,000. The selling price per unit will not change.

1. Compute the break-even point in dollar sales for next year assuming the machine is installed.

2. Prepare a contribution margin income statement for next year that shows the expected results with the machine installed. Assume sales are $1,000,000.

\begin{tabular}{|c|c|} \hline ASTROCOMPAIContributionMarginIncForYearEndedDec & ment \\ \hline Sales ( $50 per unit) & $1,000,000 \\ \hline Variable costs ( $40 per unit) & 800,000 \\ \hline Contribution margin & 200,000 \\ \hline Fixed costs & 175,000 \\ \hline Income & $25,000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline \multicolumn{2}{|l|}{ Contribution margin } & P & \multicolumn{2}{|c|}{ Per unit } \\ \hline \multicolumn{5}{|c|}{ Contribution Margin Ratio } \\ \hline Numerator: & I & Denominator: & = & Contribution Margin Ratio \\ \hlineP & l & & = & Contribution margin ratio \\ \hline & & & & \\ \hline \multicolumn{5}{|c|}{ Break-Even Point in Dollar Sales with New Machine: } \\ \hline Numerator: & l & Denominator: & = & Break-Even Point in Dollars \\ \hlineF & l & & = & Break-even point in dollars \\ \hlineF & & P & & \\ \hline \end{tabular} \begin{tabular}{|c|c|} \hline \multicolumn{2}{|c|}{ ASTRO COMPANY } \\ \hline \multicolumn{2}{|c|}{ Contribution Margin Income Statement } \\ \hline \multicolumn{2}{|c|}{ For Year Ended December 31} \\ \hline & \\ \hline & \\ \hline Contribution margin & \\ \hlineF & \\ \hline & \\ \hline \end{tabular}

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