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E6-5 Hall Company had sales in 2014

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Hall Company had sales in 2014 of $1,560,000 on 60,000 units. Variable costs totaled
$720,000, and fixed costs totaled $500,000.

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

Prepare a projected CVP income statement for 2014 (a) assuming the changes have not
been made, and (b) assuming that changes are made as described.

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