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Prepare a cost-volume-profit income statement

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Reference no: EM132316245

Question

Fuji Limited ("Fuji") manufactures and sells products made of soya beans. One of its main business is supplying packaged doufu to supermarket chains in Hong Kong. The sales and cost data of package doufu are as follows:

Unit selling price $20

Unit variable cost $10

Total fixed cost $200,000

Breakeven sales $400,000 or 20,000 units

Average monthly sales 30,000 units

Fuji's raw material supplier has just announced a price increase in soya beans due to severe supply shortage. The higher cost is expected to increase the variable cost of packaged doufu by $3 per unit.

The Management is considering the following two independent options:

1. Increase unit selling price by $3 and sales volume is expected to decrease by 15%.

2. Invest in a new machine to semi-automate the production process; this will reduce the existing variable costs by 15%, increase the fixed cost by 30% and increased both the sales volume and selling price by 5%.

Required:

a. Prepare a cost-volume-profit (CVP) income statement, showing the contribution margin and the net profit, for each option.

b. Based on your answer in (a), advise the management which option is a better choice. Explain your answers.

Reference no: EM132316245

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