Question

Sheffield Company had sales in 2019 of $1,842,400 on 65,800 units. Variable costs totaled $1,184,400, and fixed costs totaled $498,000. 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 $93,000. 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 2020, assuming the changes have not been made. SHEFFIELD COMPANY CVP Income Statement Total Per Unit $ $ $ $

Answer 1

Assuming that no changes happened, 2020 sales and expenses should be similar to 2019's:

Total Per unit

Total sales $1,842,400 $28

Variables costs ($1,184,400) ($18)

Contribution margin $658,000 $10

Fixed costs ($498,000) ($7.57)

Operating income $160,000 $2.43