Polzin Company had sales in 2010 of $1,500,000 on 60,000 units.Variable costs totaled $840,000, and fixed costs totaled $500,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.80). However, to process the new raw material, fixed operating costs will increase by $60,000.
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 7% increase in the number of units sold.
Instructions
Prepare a CVP income statement for 2010, assuming the changes are made as described.