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Blanchard Company manufactures a single product that sells for $160 per unit and whose total variable costs are $120 per unit. The company’s annual fixed costs are $629,000. The sales manager predicts that annual sales of the company’s product will soon reach 39,900 units and its price will increase to $199 per unit. According to the production manager, variable costs are expected to increase to $139 per unit, but fixed costs will remain at $629,000. The income tax rate is 25%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes? Prepare a forecasted contribution margin income statement.

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Answer:

Following are the solution to the given question:

Explanation:

                                                  Income statement

sales                                                   [tex]39900\times 199 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7940100\\\\[/tex]

The less average cost of variable [tex]39900\times 139 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5546100 \\\\[/tex]

margin for contribution                                                                       [tex]2394000\\\\[/tex]

Lesser fixed costs                                                                                  [tex]629000\\\\[/tex]

Income from of the company or tax                                                   [tex]1765000 \\\\[/tex]

Lower-income tax by [tex]25\%[/tex]                                                                      [tex]441250 \\\\[/tex]  

after-tax revenue                                                                                    [tex]1323750\\\\[/tex]

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