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MBA 6315

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Problem A (20 points): Salmon Inc. sold 21,000 units of its only product and incurred a $85,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2017's activities, the productions 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 $150,000. The maximum output capacity of the company is 40,000 units per year. Salmon Company Contribution Margin Income Statement For the Year Ending December 31, 2016 Sales $15,75,000 Variable Costs 12,60,000 Contribution Margin 3,15,000 Fixed Costs 4,00,000 Pre-Tax Loss $(85,000) Required: 1 Compute the break-even point in dollar sales for year 2016. (2 points) 2 Compute the predicted break-even point in dollar sales for year 2017 assuming the machine is installed and no change occurs in the unit selling price. (Round all numbers to the nearest dollar.) (3 points) 3 Prepare a forecasted contribution margin income statement for 2017 that shows the expected results with the machine installed. Assume that the unit selling price and the number of units sold will not change, and no income taxes will be due. (5 points) 4 Compute the sales level required in both dollars and units to earn $500,000 of target pretax income in 2017 with the machine installed and no change in unit sales price. (Round all numbers to the nearest dollar and to whole units.) (5 points) 5 Prepare a forecasted contribution margin income statement that shows the results at the sales level computed in part 4. Assume no income taxes will be due. (5 points)