Henna 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.

Required
1. Compute the break-even point in dollar sales for each product. (Round the answer to whole dollars.)
2. Assume that the company expects sales of each product to decline to 30,000 units next year with no change in unit selling 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 benefit.
3. Assume that the company expects sales of each product to increase to 60,000 units next year with no change in unit selling 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).
Analysis Component
4. If sales greatly decrease, which product would experience a greater loss? Explain.
5. Describe some factors that might have created the different cost structures for these two products.

Transcribed Image Text:

Product T Product O Sales.-.... Variable costs... Contribution margin Fixed costs Income before taxes. Income taxes (32% rate) Net income $2,000,000 $2,000,000 250,000 400,000 1,750,000 125,000 475,000 275,000 88,000 ....$ 187,000 187,000 600,000 275,000 88,000