Question: Volmar Company had sales in 2016 of $1, 250,000 on 50,000 units. Variable costs totalled $600,000, and fixed costs totalled $500,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However, to process the new raw material, fixed operating costs will increase by $50,000. Management feel 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 10% increase in the number of units sold.
Prepare a CVP income statement for 2016,
(a) assuming the changes have not been made, and
(b) assuming that changes are made as described.