Question

Assume that the company expects sales of each product to decline to 30,000 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 32% tax rate). Also, assume that any loss before taxes yields a 32% tax benefit

HENNA CO.
Forecasted Contribution Margin Income Statement
Product T Product O Total
Units $ Per unit Total $ Per unit Total
Sales $16.40 $16.40 $0 $0
Variable cost $9.84 0 $3.28 0 0
Contribution margin $6.56 0 $13.12 0 0
Fixed costs 210,240 564,480 (354,240)
Income before taxes (210,240) (210,240)
Income taxes (tax benefit) ???????? ????????
Net income (loss)
Assume that the company expects sales of each product to increase to 68,000 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 shown with columns for each of the two products (assume a 32% tax rate). (Round "per unit" answers to 2 decimal places.)

HENNA CO.
Forecasted Contribution Margin Income Statement
Product T Product O Total
Units $ Per unit Total $ Per unit Total
Sales $16.40 $0 $16.40 $0 $0
Variable cost $9.84 0 3.28 0 0
Contribution margin $6.56 0 $13.12 0 0
Fixed costs 210,240 564,480 774,720
Income (loss) before taxes (210,240)
Income taxes (tax benefit) ?????? ??????
Net income (loss) $(210,240)
Compute the break-even point in dollar sales for each product.

Answer 1

a. HENNA CO. Forecasted Contribution Margin Income Statement

Product T Product O

Sales 492,000 492,000

Variable cost (294,000) (98,400)

Contribution margin 198,000 393,600

Fixed costs (210,240) (564,480)

Income (loss) before taxes (12,240) (170,880)

Income taxes (tax benefit) (3,968) (54,682)

Net income (loss) 16,208 225,562

b. break-even point in dollar sales

Product T = $525,600

Product O = $705,600

Step-by-step explanation:

break-even point in dollar sales = Fixed Costs / Contribution Margin Ratio per unit

Product T

break-even point in dollar sales = $210,240/ ($6.56/$16.40)

= $525,600

Product O

break-even point in dollar sales = $564,480/ ($13.12/$16.40)

= $705,600