Question

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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 43,000 units of each product. Sales and costs for each product follow.

	Product T					Product O
Sales		$	761,100				$	761,100
Variable costs			608,880					76,110
Contribution margin			152,220					684,990
Fixed costs			33,220					565,990
Income before taxes			119,000					119,000
Income taxes (32% rate)			35,700					35,700
Net income		$	83,300				$	83,300
Assume that the company expects sales of each product to decline to 26,000 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 30% tax rate). Also, assume that any loss before taxes yields a 30% tax benefit. (Round "per unit" answers to 2 decimal places. Enter losses and tax benefits, if any, as negative values.) Hint: Prepare a forecasted contribution Margin income statesment for Henna Company for products T and O, with per unit values and total values. I believe the rows in order should be Sales, Variable Cost, Contribution Margin, Fixed costs, Income before Taxes, Income taxes(tax benefit), and Net income (loss).

Answer 1

Solution :

Forecasted contribution margin income statement - Henna Co. (Sales volume -26000 units)
Particulars	Product T		Product O
	Per unit	Amount	Per unit	Amount
Sales	$17.70	$460,200.00	$17.70	$460,200.00
Variable costs	$14.16	$368,160.00	$1.77	$46,020.00
contribution margin	$3.54	$92,040.00	$15.93	$414,180.00
Fixed costs		$33,220.00		$565,990.00
Income before taxes		$58,820.00		-$151,810.00
Income taxes (Tax benefit) (30%)		$17,646.00		-$45,543.00
Net Income (Loss)		$41,174.00		-$106,267.00