This year , Kirby company sold 35,000 units of production at $16 per unit. Maunfactoring and selling the product required $120,000 of mixed manufacturing costs and $180,000 of fixed selling and administrative expenses. This years variable costs and expenses per unit were:

Material……………………………….....................................$4. 00
Direct Labour(paid on the basis of completed units)………….$3.00
Variable Manufacturing overhead costs……………………….$0.40
Variable selling and administrative expenses…………………$0.20

Next year the company will use new raw material that is easier to work with and cheaper than the old material. A switch the new material will decrease material costs by 60% and direct labour costs can be decreased by 40%. The new material will not affect the products quality or marketability. The next set of decisions concerns the marketing strategy to be used. Because the factory’s output is creeping up to it’s annual capacity of 40,000 units, some consideration is being given to increase the selling price and to reduce the number of units sold. At this point two strategies have been identified. Under plan 1, the company will keep the price at the current level and sell the same volume as this year. This plan increases profit because of the materials change. Under plan 2, the products price will increase by 25%, but unit sales volume will fall only 10%. Under both plan 1 and 2, all of the fixed costs and variable costs(per unit) will be exactly the same.

Required
1 Prepare side -by -side condensed forecasted income statements showing the anticipated results of plan 1 and 2 The statement should show sales. Total fixed costs, total variable costs and expenses, income before taxes, income taxes(30% rate), and net income.

To prepare the side-by-side condensed forecasted income statements showing the anticipated results of plan 1 and plan 2, we need to calculate the relevant figures for each plan.

Let's start by calculating the figures for plan 1, assuming that the company will keep the price at the current level and sell the same volume as this year.

1. Sales:
Number of units sold: 35,000
Price per unit: $16
Total sales revenue: 35,000 units * $16 per unit = $560,000

2. Total fixed costs:
Manufacturing costs: $120,000
Selling and administrative expenses: $180,000
Total fixed costs: $120,000 + $180,000 = $300,000

3. Total variable costs and expenses per unit:
Material: $4.00
Direct labor: $3.00
Variable manufacturing overhead costs: $0.40
Variable selling and administrative expenses: $0.20
Total variable costs per unit: $4.00 + $3.00 + $0.40 + $0.20 = $7.60

Total variable costs and expenses for all units: 35,000 units * $7.60 per unit = $266,000

4. Income before taxes:
Sales revenue - Total variable costs and expenses - Total fixed costs = $560,000 - $266,000 - $300,000 = -$6,000

5. Income taxes (30% rate):
Income before taxes * 30% = -$6,000 * 0.3 = -$1,800

6. Net income:
Income before taxes - Income taxes = -$6,000 - (-$1,800) = -$4,200

Now let's calculate the figures for plan 2, assuming that the product's price will increase by 25%, but unit sales volume will fall only 10%.

1. Sales:
Number of units sold: 35,000 * 0.9 = 31,500 (10% decrease)
Price per unit: $16 * 1.25 = $20
Total sales revenue: 31,500 units * $20 per unit = $630,000

2. Total fixed costs: Same as plan 1, $300,000

3. Total variable costs and expenses per unit: Same as plan 1, $7.60

Total variable costs and expenses for all units: 31,500 units * $7.60 per unit = $239,400

4. Income before taxes:
Sales revenue - Total variable costs and expenses - Total fixed costs = $630,000 - $239,400 - $300,000 = $90,600

5. Income taxes (30% rate):
Income before taxes * 30% = $90,600 * 0.3 = $27,180

6. Net income:
Income before taxes - Income taxes = $90,600 - $27,180 = $63,420

So, the condensed forecasted income statements for plan 1 and plan 2 would be as follows:

Plan 1:
Sales: $560,000
Total fixed costs: $300,000
Total variable costs and expenses: $266,000
Income before taxes: -$6,000
Income taxes: -$1,800
Net income: -$4,200

Plan 2:
Sales: $630,000
Total fixed costs: $300,000
Total variable costs and expenses: $239,400
Income before taxes: $90,600
Income taxes: $27,180
Net income: $63,420