Question

The first pictures answers have to be put on the answer sheet pictures.

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 Producto Sales Variable costs Contribution marge Puedos Income before Income taxes (12 race) Net income $800.000 560,000 240,000 100,000 140.000 41.800 95.200 $800,000 100 000 700.000 560.000 140.000 44.000 $ 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 0. 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 Focus ited States MacBook Air DOO FR FVO A & $ 4 % 5 6 7 8 9 0

Answer 1

Product O Product T From the data given Compute Contribution Margin per unit for each of $4.80 (Refer Note 1 for $ 14.00 (Refer Note 1 the products show your work. Workings) for Workings) From the data given Compute Contribution Margin Ratio for each of the 30% (Refer Note 2 for 87.50% (Refer Note 2 products show your work. Workings) for Workings) Compute the Break even point in dollars $333,333.33 (Refer for each of the products show your work. Note 3 for Workings) $ 640,000 (Refer Note 3 for Workings) Compute the Break even point in Units 20,8333.33 Units (Refer 40,000 Units (Refer for each of the products show your work. Note 4 for Workings) Note 4 for Workings) Compute the sales price for each of the $16.00 per unit (Refer $ 16.00 per unit (Refer products show your work. Note 5 for Workings) Note 5 for Workings) Compute the Variable Cost per unit for $ 11.20 Per Unit (Refer $ 2.00 per Unit (Refer each of the products show your work. Note 6 for Workings) Note 6 for Workings)

Letter Company Forecasted Contribution Margin Income statement No. of Units = 33,000 Product Producto Sales $ 528,000 $ 528,000 (sale price per Unit *33000 Units) Variable Cost $ 369,600 $ 66,000 (Variable Cost per Unit *33000 Units) Contribution margin 158,400 $ 462,000 (Sales - Variable Cost) Fixed Costs $ 140,000 $ 560,000 Given Income before tax $ 18,400 $ (98,000) (Contribution Margin - Fixed Cost)' Income Tax expenses/ (Savings) (32%) $ 5,888 $ (31,360) (Income Before Tax* tax Rate (32%) Net Income $ 12,512 $ (66,640) (Income Before Tax - Tax expenses/ (savings)

Letter Company Forecasted Contribution Margin Income statement No. of Units = 64,000 Product T Producto Sales $ 1,024,000 $ 1,024,000 (Sale price per Unit *64000 Units) Variable Cost $ 716,800 $ 128,000 (Variable Cost per Unit *64000 Units) Contribution margin $ 307,200 $ 896,000 (Sales - Variable Cost) Fixed Costs $ 140,000 $ 560,000 Given Income before tax 167,200 $ 336,000 (Contribution Margin - Fixed Cost)' Income Tax expenses/ (Savings) (32%) $ 53,504 $ 107,520 (Income Before Tax* tax Rate (32%) Net Income 113,696 $ 228,480 (Income Before Tax - Tax expenses/ (savings) $

Notes:

1 Contribution per Unit Contribution Margin No. of Units Sold Contribution per Unit Product T Producto $ 240,000 $ 700,000 50,000 50,000 $ 4.80 $ 14.00 (Contribution Margin/No. of Units Sold) 2 Contribution Margin ratio Contribution Margin Sales Contribution Margin ratio Product T Producto $ 240,000 $ 700,000 $ 800,000 $ 800,000 30.00% 87.50% (Contribution Margin/Sales) 3 Break Even Point in dollars Product T Producto Fixed Costs $ 100,000 $ 560,000 Contribution Margin ratio 30.00% 87.50% Break Even Point in dollars $333,333.33 $ 640,000.00 (Fixed Costs/ Contribution Margin ratio) 4 Break Even Point in Units Costs Contribution per Unit Break Even Point in Units Product T Producto $ 100,000 $ 560,000 $ 4.80 $ 14.00 $ 20,833.33 $ 40,000.00 (Fixed Costs/ Contribution Margin per Unit)

5 Sales Price per of each product Product T Producto Sales $ 800,000 $ 800,000 No. of Units Sold 50,000 $ 50,000 Sales Price per of each product $ 16.00 $ 16.00 (Sales/ No. of Units Sold) $ 6 Variable Cost per Unit Variable Cost No. of Units Sold Variable Cost per Unit Product T Producto $ 560,000 $ 100,000 $ 50,000 $ 50,000 $ 11.20 $ 2.00 (variable Cost/ No. of Units Sold)