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 44,000 units of each product. Sales and costs for each product follow.

	Product T				Product O
Sales		$	774,400			$	774,400
Variable costs			464,640				154,880
Contribution margin			309,760				619,520
Fixed costs			187,760				497,520
Profit before taxes			122,000				122,000
Income taxes (32% rate)			39,040				39,040
Net profit		$	82,960			$	82,960

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 27,000 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)Sales commissionsOffice equipment leaseSalesFactory maintenanceTaxes on factory	$	$
(Click to select)Sales comissionsRent on factoryTaxes on factoryVariable costsOffice equipment lease
(Click to select)Contribution marginGross profit
(Click to select)Fixed costsRent on factorySales comissionsOffice equipment leaseFactory maintenance
(Click to select)Rent on factoryIncome before taxesTaxes on factoryOffice equipment leaseSales comissions
(Click to select)Office equipment leaseRent on factoryIncome taxesSales comissionsTaxes on factory
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 58,000 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)SalesRent on factorySales comissionsTaxes on factoryOffice equipment lease	$	$
(Click to select)Office equipment leaseRent on factoryTaxes on factoryFactory maintenanceVariable costs
(Click to select)Gross profitContribution margin
(Click to select)Office equipment leaseTaxes on factoryRent on factoryFixed costsFactory maintenance
(Click to select)Income before taxesTaxes on factoryFactory maintenanceSales commissionsRent on factory
(Click to select)Sales comissionsTaxes on factoryFactory maintenanceOffice equipment leaseIncome taxes
(Click to select)Net incomeNet loss	$	$

Answer 1

1. Break-even point in dollar sales = Fixed costs/Contribution margin ratio

Contribution margin ratio = Contribution margin/Sales

Product T: $469400

Product O: $621900

	Product T	Product O
Sales	774400	774400
Contribution margin	309760	619520
Contribution margin ratio	40.0%	80.0%
Fixed costs	187760	497520
Break-even in dollar sales	469400	621900

2.

LETTER CO.
Forecasted Contribution Margin Income Statement
	Product T	Product O
Sales	475200	475200
Variable costs	285120	95040
Contribution margin	190080	380160
Fixed costs	187760	497520
Income before taxes	2320	-117360
Income taxes (32%)	742	-37555
Net income/loss	1578	-79805

3.

LETTER CO.
Forecasted Contribution Margin Income Statement
	Product T	Product O
Sales	1020800	1020800
Variable costs	612480	204160
Contribution margin	408320	816640
Fixed costs	187760	497520
Income before taxes	220560	319120
Income taxes (32%)	70579	102118
Net income/loss	149981	217002

Sales price per unit = $774400/44000 = $17.60