Question

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 59,000 units of each product. Sales and costs for each product follow. Sales Variable costs Contribution margin Fixed costs Income before taxes Income taxes (30% rate) Net income Product T $ 997, 109 697,970 299, 130 150, 130 149,000 44,700 $ 104,300 Product O $ 997,100 99,710 897,390 748,390 149,000 44,700 $ 104,300 Problem 18-5A 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.) Product I Contribution Margin Ratio Choose Numerator: 1 Choose Denominator: = Contribution Margin Ratio Contribution margin ratio Break-Even Point in Dollars Choose Numerator: 1 Choose Denominator: = Break-Even Point in Dollars Break-even point in dollars Producto Contribution Margin Ratio Contribution margin ratio Break-Even Point in Dollars Break-even point in dollars

Answer 1

Product T
Contribution Margin ratio
	Choose Numerator:	/	Choose Denominator:	=	Contribution Margin Ratio
	Contribution Margin	/	Sales	=	Contribution margin ratio
299,130.00	/	997,100	=	30.00%
	Choose Numerator:	/	Choose Denominator:	=	Break-Even Dollars
	Fixed costs	/	Contribution margin ratio	=	Break-even dollars
$150,130	/	30%	=	500,433
Product O
Contribution Margin ratio
	Choose Numerator:	/	Choose Denominator:	=	Contribution Margin Ratio
	Contribution Margin	/	Sales	=	Contribution margin ratio
897,390	/	997,100	=	90.00%
	Choose Numerator:	/	Choose Denominator:	=	Break-Even Dollars
	Fixed costs	/	Contribution margin ratio	=	Break-even dollars
$748,390	/	90%	=	831,544
Henna Co.
Forcasted Contribution Margin Income Statement
			Product T	Product O	Total
		Units	$ per unit	Total	$ per unit	Total
	Sales	42,000	$16.90	709,800	$16.90	709,800	1,419,600
Less:	Variable cost	42,000	11.83	496,860	$1.69	70,980	567,840
	Contribution margin		$5.07	212,940	$15.21	638,820	851,760
Less:	Fixed costs			150,130		748,390	898,520
	Profit before tax			62,810		(109,570)	(46,760)
	Less: tax			18,843		(32,871)	(14,028)
	Net Income /(Loss)			43,967		(76,699)	(32,732)