Carey Company had sales in 2016 of $1,920,000 on 64,000 units. Variable costs totaled $1,152,000, and fixed costs totaled $477,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or $3.60). However, to process the new raw material, fixed operating costs will increase by $98,000. 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.
(a) Prepare a projected CVP income statement for 2017, assuming the changes have not been made
(b) Prepare a projected CVP income statement for 2017, assuming that changes are made as described.