Hall Company had sales in 2014 of $1,560,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $500,000.
A new raw material is available that will decrease the variable costs per unit by 25% (or $3.00). However; to process the new raw material, fixed operating costs will increase by $150,000. Management feels that one-half of the decline in the variable costs per unit 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 2014 (a) assuming the changes have not been made, and (b) assuming that changes are made as described.