Question :

Hall Company had sales in 2012 of $1,500,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $400,000.

A new raw material is required that will decrease the variable costs per unit by 25% (or $3.00). Thus, to process the new raw material, fixed operating costs can increase by $150,000. Management feels that one-half of the declines in the variable costs per unit could be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction can result in a 5% increase in the number of units sold.

Do the CVP income statement for 2012, (a) consider the changes have not been made and (b) consider the changes are made as described. All other amounts round to 0 decimal places, e.g. 550,000.)