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Break-even analysis, different cost structures, and income calculations.

Vanna 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 53,000 units of each product. Sales and costs for each product follow.

Product T Product O

Sales $ 863,900 $ 863,900

Variable costs 604,730 86,390

Contribution margin 259,170 777,510

Fixed costs 116,170 634,510

Income before taxes 143,000 143,000

Income taxes (40% rate) 57,200 57,200

Net income $ 85,800 $ 85,800

1.Compute the break-even point in dollar sales for each product

Product T

Contribution margin ratio

	Choose Numerator:	/	Choose Denominator	=	Contribution margin ratio
		/		=	Contribution margin ratio
					0
Break-even point in dollars
	Choose Numerator:	/	Choose Denominator	=	Break-even point in dollars
		/			Break-even point in dollars
					0
Product O

Contribution margin ratio

		/		=	0
Break-even point in dollars
		/		=	0

2. Assume that the company expects sales of each product to decline to 36,000 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 40% tax rate). Also, assume that any loss before taxes yields a 40% tax savings. (Enter Losses and Tax benefits with a minus sign, and all the remaining values as positive numbers.)

VANNA CO.

Forcasted Contribution Margin Income Statement

		Product T						Product O			Total
	Units	$ per unit					Total	$per unit		Tota
Contribution Margin
Net Income (loss)

3. Assume that the company expects sales of each product to increase to 67,000 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 40% tax rate). (Enter all values as positive.)

VANNA CO.

Forcasted Contribution Margin Income Statement

		Product T						Product O			Total
	Units	$ per unit					Total	$per unit		Total
Contribution Margin
Net Income (loss)