Letter Co. produces and sells two products, T and O. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 50,000 units of each product. Sales and costs for each product follow.
Product T Product O
Sales $ 800,000 $ 800,000
Variable costs 560,000 100,000
Contribution margin 240,000 700,000
Fixed costs 100,000 560,000
Income before taxes 140,000 140,000
Income taxes (32% rate) 44,800 44,800
Net income $ 95,200 $ 95,200
references
11.
value:
5 points
Problem 22 5A Part 1
Required:
1.
Compute the break even point in dollar sales for each product. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount. Omit the “$” sign in your response.)
Product T $
Product O $
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12.
value:
5 points
Problem 22 5A Part 2
2.
Assume that the company expects sales of each product to decline to 33,000 units next year with no change in unit sales price. Prepare forecasted financial results for next year following the format of the contribution margin income statement as just shown with columns for each of the two products (assume a 32% tax rate). Also, assume that any loss before taxes yields a 32% tax savings. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar amount. Input all amounts as positive values except losses and tax savings on losses, which should be indicated by a minus sign.)
LETTER CO.
Forecasted Contribution Margin Income Statement
Product T Product O
$ $
Net income/loss $ $
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13.
value:
10 points
Problem 22 5A Part 3
3.
Assume that the company expects sales of each product to increase to 64,000 units next year with no change in unit sales price. Prepare forecasted financial results for next year following the format of the contribution margin income statement shown with columns for each of the two products (assume a 32% tax rate). (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar amount. Input all amounts as positive values except losses which should be indicated by minus sign. Omit the “$” sign in your response.)
LETTER CO.
Forecasted Contribution Margin Income Statement
Product T Product O
$ $
$ $
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