Question

Assume the company is considering investing in a new machine that will increase its fixed costs by $42,500 per year and decrease its variable costs by $10 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine.

Answer 1

Answer:

The company should purchase the machine.

Explanation:

Note: The complete question is attached below

Forecasted contribution margin income statement

For the Year Ended December 31

Particulars                                       Amount$

Sales                                                2,440,000

Variable cost(10,000*185(195-10))  1,850,000

Contribution margin                        590,000

Fixed cost (327,600+42,500)         370,100

Income                                              $219,900

Because the income increase by $57,500 due to the pruchase, the company should purchase the machine