Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs totaled $900,000 and fixed costs totaled $500,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $3). However, to process the new material, fixed operating costs will increase by $100,000. 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 projected CVP income statement for 2017 (a) assuming the changes have not been made, and (b) assuming that changes are made as described.
