Jetson Co. sold 19,700 units of its only product and incurred a $59,290 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2012’s activities, the production manager notes that variable costs can be reduced 40% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $147,000. The maximum output capacity of the company is 40,000 units per year.
Contribution Margin Income Statement
For Year Ended December 31, 2011
Sales $ 732,840
Variable costs 549,630
Contribution margin 183,210
Fixed costs 242,500
Net loss $(59,290)
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