Carey Company had sales in 2019 of $1,658,800 on 63,800 units. Variable costs totaled $1,148,400, and fixed costs totaled $467,000.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 $94,000. 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. Requried:
a. Prepare a projected CVP income statement for 2020, assuming the changes have not been made.
b. Prepare a projected CVP income statement for 2017, assuming that changes are made as described.

Carey Company

a) Projected CVP Income Statement for 2020 (without changes):

Sales                   $1,658,800

Variable costs        1,148,400

Contribution          $510,400

Fixed Costs            467,000

Profit                      $43,400

b) Projected CVP Income Statement for 2020 (with changes)

Sales                    $1,621,158

Variable costs        964,656

Contribution        $656,502

Fixed Costs            561,000

Profit                     $95,502

Explanation:

a) Sales units will increase from 63,800 to 66,990 (63,800 x 1.05)

b) Old selling price = $1,658,800/63,800 = $26 per unit

c) New selling price = $26.00 - $1.80 = $24.20 per unit

d) Old variable cost  per unit = $1,148,400/63,800 = $18

e) New variable cost per unit = $18 - 3.60 = $14.40

f) Sales Value = $24.20 x 66,990 = $1,621,158

g) Variable costs = $14.40 x 66,990 = $964,656

h) New fixed cost = $467,000 + 94,000 = $561,000

i) A CVP Income Statement is a Cost Volume Profit income statement whereby the costs are identified according to their cost behaviors of whether they are fixed or variable or semi-fixed.

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.