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 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 Income before taxes 122,000 122,000 Income taxes (32% rate) 39,040 39,040 Net income $ 82,960 $ 82,960 Required: 1. Compute the break-even point in dollar sales for each product

Answer 1

Hanna Co.

The break-even point in dollar sales:

Product T Product O

= $469,400 $621,900

Step-by-step explanation:

a) Data and Calculations:

Product T Product O

Sales unit 44,000 44,000

Sales $ 774,400 $ 774,400

Variable costs 464,640 154,880

Contribution margin 309,760 619,520

Fixed costs 187,760 497,520

Income before taxes 122,000 122,000

Income taxes (32% rate) 39,040 39,040

Net income $ 82,960 $ 82,960

Break-even point in dollar sales for each product:

Unit sales price $17.60 $17.60

Unit variable cost 10.56 3.52

Unit contribution $7.04 $14.08

Contribution margin ratio 0.4 0.8

Fixed costs 187,760 497,520

Break-even point in dollar sales = Fixed Costs/Contribution margin ratio

= $187,760/0.4 $497,520/0.8

= $469,400 $621,900