Problem 22-5A

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

Required

1. From the data given compute the contribution margin per unit for each of the products T and O.
2. From the data given compute the contribution margin ratio for each of the products T and O.
3. Compute the break-even point in dollar sales for each product T and O.
4. Compute the break-even point in units for each product T and O.
5. From the data given compute the sales price for each product T and O.
6. From the data given compute variable cost per unit for each product T and O.
7. 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.
8. 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).
9. Choose the product that will have the largest loss if sales greatly decrease.

Please solve questions 1- 9.