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 45,000 units of each product. Sales and costs for each product follow. Sales Variable costs Contribution margin Fixed costs Income before taxes Income taxes (32 rate) Net income Product T Product O $ 787,500 $ 787,500 551,250 78,750 236,250 708,750 111.250 583,750 125,000 125,000 50,000 50,000 $ 75,000 $ 75,000 Problem 21-5A Part 1 Required: 1. Compute the break-even point in dollar sales for each product. (Enter CM ratio as percentage rounded to 2 decimal places.) Answer is complete and correct. Product T Contribution Margin Ratio Choose Numerator: 1 Choose Denominator: Sales Contribution margin ! Contribution Margin Ratio Contribution margin ratio 30.00% $ 787,500 236,250 Break-Even Point in Dollars Choose Numerator: = Total fixed costs Choose Denominator: Contribution margin ratio 30.00% = Break-Even Point in Dollars Break-even point in dollars $ 370,833 111,2501 = Producto Sales Contribution Margin Ratio Contribution margin 708,750 Break-Even Points in Dollars Total fixed costs Contribution margin ratio 90.00% S 787,500 = Contribution margin ratio Break-even point in dollars 648,611 583,750 90.00% 2. Assume that the company expects sales of each product to decline to 28,000 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 40% tax rate). Also, assume that any loss before taxes yields a 40% tax benefit. (Round "per unit" answers to 2 decimal places. Enter losses and tax benefits, if any, as negative values.) Total HENNA CO. Forecasted Contribution Margin Income Statement Product T Producto Units $ Per unit Total $ Per unit Total 28,000 $ 28,000 28,000 0 0 Sales Variable cost Contribution margin Fixed costs Income before taxes Income taxes (tax benefit) Net income (loss) 0 3. Assume that the company expects sales of each product to increase to 59,000 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 40% tax rate). (Round "per unit" answers to 2 decimal places.) HENNA CO. Forecasted Contribution Margin Income Statement Product T Producto Units $ Per unit Total $ Per unit Total Total Contribution margin Net income (loss) $ 0
