Question

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 48,000 units of each product. Sales and costs for each product follow.

	Product T				Product O
Sales		$	825,600			$	825,600
Variable costs			577,920				165,120
Contribution margin			247,680				660,480
Fixed costs			113,680				526,480
Profit before taxes			134,000				134,000
Income taxes (32% rate)			42,880				42,880
Net profit		$	91,120			$	91,120

1.

value:
10.00 points

Required information

Required:
1.	Compute the break-even point in dollar sales for each product. (Round your contribution margin ratio to 1 decimal place, other 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	$

References

WorksheetLearning Objective: 22-A1 Compute the contribution margin and describe what it reveals about a company’s cost structure.Learning Objective: 22-P4 Compute the break-even point for a LP22 multiproduct company

Difficulty: 3 HardLearning Objective: 22-C2 Describe several applications of costvolume- profit analysis.

Check my work

2.

value:
10.00 points

Required information

2.

Assume that the company expects sales of each product to decline to 31,000 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. (Round your contribution margin ratio to 1 decimal place, other intermediate calculations to 2 decimal places and 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. Omit the "$" sign in your response.)

   

LETTER CO. Forecasted Contribution Margin Income Statement
	Product T	Product O
(Click to select)Factory maintenanceOffice equipment leaseSales commissionsTaxes on factorySales	$	$
(Click to select)Taxes on factoryOffice equipment leaseRent on factoryVariable costsSales comissions
(Click to select)Gross profitContribution margin
(Click to select)Factory maintenanceFixed costsSales comissionsRent on factoryOffice equipment lease
(Click to select)Office equipment leaseSales comissionsRent on factoryIncome before taxesTaxes on factory
(Click to select)Income taxesRent on factoryOffice equipment leaseTaxes on factorySales comissions
Net income/loss	$	$

References

WorksheetLearning Objective: 22-A1 Compute the contribution margin and describe what it reveals about a company’s cost structure.Learning Objective: 22-P4 Compute the break-even point for a LP22 multiproduct company

Difficulty: 3 HardLearning Objective: 22-C2 Describe several applications of costvolume- profit analysis.

Check my work

3.

value:
10.00 points

Required information

3.

Assume that the company expects sales of each product to increase to 62,000 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). (Round your contribution margin ratio to 1 decimal place, other intermediate calculations to 2 decimal places and 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. Omit the "$" sign in your response.)

  

LETTER CO. Forecasted Contribution Margin Income Statement
	Product T	Product O
(Click to select)SalesSales comissionsRent on factoryTaxes on factoryOffice equipment lease	$	$
(Click to select)Taxes on factoryRent on factoryOffice equipment leaseFactory maintenanceVariable costs
(Click to select)Contribution marginGross profit
(Click to select)Office equipment leaseRent on factoryTaxes on factoryFactory maintenanceFixed costs
(Click to select)Sales commissionsRent on factoryFactory maintenanceTaxes on factoryIncome before taxes
(Click to select)Office equipment leaseTaxes on factoryFactory maintenanceIncome taxesSales comissions
(Click to select)Net lossNet income	$	$

Answer 1

Calculation of Break Even Sales $ Amount
Particulars		Product T		Product O
Contribution Margin		247680		660480
No. of Units		48000		48000
Contribution Margin Per unit		5.16		13.76
Fixed Costs		113680		526480
BEP Units		22031.01		38261.63
		22032		38262	(Roundoff)
Sale Price Per Unit		17.2		17.2
BEP in Dollar Sale Amount		378950.4		658106.4
	Roundoff to Nearest Dollar	378951		658107
	Forecasted Income Statement
	Particulars		Product T		Product O
	Sales(31000 units)		533200		533200
Less:
	Variable Cost		373240		106640
	(577920/48000,165120/48000)
	Contributio Margin		159960		426560
	Fixed Costs		113680		526480
	Profit Before Taxes		46280		-99920
	Income Taxes @ 32%		14809.6		-31974.4
	Net Income/(Loss)		31470		-67946
	Forecasted Income Statement
	Particulars		Product T		Product O
	Sales(62000 units)		1066400		1066400
Less:
	Variable Cost		746480		213280
	(577920/48000,165120/48000)
	Contributio Margin		319920		853120
	Fixed Costs		113680		526480
	Profit Before Taxes		206240		326640
	Income Taxes @ 32%		65996.8		104524.8
	Net Income/(Loss)		140243		358614