Hall Company had sales in 2014 of $1,560,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $500,000. A new raw material is available that will decrease the variable costs per unit by 25% (or $3.00). However, to process the new raw material, fixed operating costs will increase by $150,000. Management feels that one-half of the declines in the variable costs per unit should be passed on to customers in 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.
Instructions:
Prepare a projected CVP income statement for 2014 :
(a) assuming the changes have not been made, and
(b) assuming that changes are made as described.