Question

Assume the company is considering investing in a new machine that will increase its fixed costs by $42,500 per year and decrease its variable costs by $10 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine.

Answer 1

The company should purchase the machine.

Step-by-step explanation:

Note: The complete question is attached below

Forecasted contribution margin income statement

For the Year Ended December 31

Particulars Amount$

Sales 2,440,000

Variable cost(10,000*185(195-10)) 1,850,000

Contribution margin 590,000

Fixed cost (327,600+42,500) 370,100

Income $219,900

Because the income increase by $57,500 due to the pruchase, the company should purchase the machine