Question

Sunn Company manufactures a single product that sells for $190 per unit and whose variable costs are $133 per unit. The company's annual fixed costs are $628,000. The sales manager predicts that next year's annual sales of the company's product will be 39,800 units at a price of $198 per unit. Variable costs are predicted to increase to $138 per unit, but fixed costs will remain at $628,000. What amount of income can the company expect to earn under these predicted changes? Prepare a contribution margin income statement for the next year.

Answer 1

Sunn Company is expected to earn an income of $1,760,000 next year after accounting for all the predicted changes in sales price, variable costs, and maintaining the same fixed costs.

Step-by-step explanation:

To calculate the expected income of Sunn Company for next year, we'll prepare a contribution margin income statement using the predicted changes. Here's how it would look:

Contribution Margin Income Statement:

• Sales (39,800 units x $198/unit) = $7,880,400
• Variable Costs (39,800 units x $138/unit) = $5,492,400
• Contribution Margin (Sales - Variable Costs) = $2,388,000
• Fixed Costs = $628,000
• Net Income (Contribution Margin - Fixed Costs) = $1,760,000

Thus, under these predicted changes, Sunn Company can expect to earn an income of $1,760,000 next year.