MicroImage Technology, Inc. produces miniature digital color cameras that can be attached to endoscopes and other medical devices. The cameras sell for $215 per unit and are disposed of after each use. For 2017, the company's first full year of operation, the company had sales of 80,000 units and a net loss of $9,810,000, as follows:

The company is closely held, with six major inventors. Early in the first quarter of 2018, Warren Logan, company CFO, was preparing to meet with them to present profitability estimates for the coming 2 years. He expected the meeting to be somewhat hostile.
Two days before, he had received an email from one of the investors, Sanjay Patel:
Warren:
I expected a net loss but not this big. And I certainly didn't expect a negative gross profit! It looks like the more we sell, the more we'll lose. I hope you come to the investor meeting next week with some explanations and some better numbers.
SP
In preparing for the meeting, Warren assembled the following information based on results for 2017:

Required
a. Recast the full costing income statement for 2017 into a variable costing format. Does it appear, as Sanjay Patel contends, that the more the company sells, the more it loses?
b. Based on the previous information, calculate sales in dollars and units needed to break even in 2018.
c. Warren Logan, CFO, has developed assumptions that he believes are reasonable for 2018 and 2019. Using these assumptions, prepare budgeted income statements for 2018 and 2019 using the variable costing method. Are the major investors likely to find forecasted profits encouraging?
Assumptions for 2018
1. The company will hire two additional sales managers at a base salary of $90,000 each.
2. R&D will be cut by $1,100,000.
3. Unit sales will increase by 30 percent.
Assumptions for 2019
1. The company will hire one additional sales manager at a base salary of $90,000.
2. R&D will be increased by $600,000 over 2018.
3. Unit sales will increase by 60 percent over 2018.

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Microlmage Technology, Inc. Income Statement For the Year Ended December 31, 2017 Sales $17,200,000 Less cost of goods sold Gross profit (loss) Less selling and administrative expenses: Selling expense Administrative expense 18,360,000 (1,160,000) $3,750,000 4,900,000 8,650,000 ($ 9,810,000) Net loss Units sold 80,000 Units produced Selling price Manufacturing costs: 80,000 215 Direct material costs $ 1,280,000 Direct labor costs 1,200,000 Variable manufacturing overhead: Equipment maintenance Inspection costs Miscellaneous variable manufacturing overhead Fixed manufacturing overhead: 160,000 400,000 320,000 Rent 1,800,000 Depreciation Supervisory salaries Miscellaneous fixed manufacturing overhead 5,000,000 4,500,000 3,700,000 $18,360,000 Selling expenses Variable selling expense: Shipping $ 280,000 Commissions 800,000 Travel 120,000 Fixed selling expense: Salaries 1,900,000 Miscellaneous fixed selling expense 650,000 $ 3,750,000 Administrative expenses (all fixed) Research and development $ 2,700,000 Administrative salaries not related to R&D 1,300,000 Miscellaneous administrative expense 900,000 $ 4,900,000