Question - Jetson Co. sold 20,300 units of its only product and incurred a $78,798 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012'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 $153,000. The maximum output capacity of the company is 40,000 units per year.
|
JETSON COMPANY
Contribution Margin Income Statement
For Year Ended December 31, 2011
|
|
Sales
|
$767,340
|
|
Variable costs
|
537,138
|
|
Contribution margin
|
230,202
|
|
Fixed costs
|
309,000
|
|
Net loss
|
$(78,798)
|
Compute the sales level required in both dollars and units to earn $161,000 of after-tax income in 2012 with the machine installed and no change in the unit sales price. Assume that the income tax rate is 30%.