Question

PB5.

LO 3.2Wellington, Inc., reports the following contribution margin income statement for the month of May. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $10 but will increase fixed costs by 20%. Prepare a projected contribution margin income statement for Wellington, Inc., assuming it purchases the new equipment. Assume sales level remains unchanged.

Answer 1

WELLINGTON, INC.

Projected Contribution Margin Income Statement

for Year Ended December 31, 2020

$

Sales(800 units at $225 per unit) 180,000

Variable costs (800 units at $110 per unit) 88,000

Contriution Margin 92,000

Fixed Cost (1.2*35,000) 42,000

Net Income (Loss) 50,000

Step-by-step explanation:

Variable cost =$120-$10=$110

Fixed cost increase by 20%=1.2*$35,000.