Question

Required information [The following information applies to the questions displayed below.) 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 49,000 units of each product. Sales and costs for each product follow. Sales Variable costs Contribution margin Fixed costs Income before taxes Income taxes (32% rate) Net income Product T $ 837,900 670,320 167,580 30,580 137,000 54,800 $ 82,200 Product o $ 837,900 83,790 754,110 617,110 137,000 54,800 $ 82,200 2. Assume that the company expects sales of each product to decline to 32,000 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 40% tax rate). Also, assume that any loss before taxes yields a 40% tax benefit. (Round "per unit" answers to 2 decimal places. Enter losses and tax benefits, if any, as negative values.) Total HENNA CO. Forecasted Contribution Margin Income Statement Product I Producto Units $ Per unit Total $ Per unit Total 32,000 32,000 32,000 Sales Variable cost Contribution margin Fixed costs Income before taxes Income taxes (tax benefit) Net income (loss)

Answer 1

Sales per unit = $837,900/49,000 = $17.1

Variable cost per unit :

Product T = $670,320/49,000 = $13.68

Product O = $83,790/49,000 = $1.71

2.

HENNA CO. Forecasted Contribution Income Statement
		Product T		Product O		Total
	Units	Per unit	Total	Per unit	Total
Sales	32,000	$17.1	$547,200	$17.1	$547,200	$1,094,400
Variable cost	32,000	13.68	437,760	1.71	54,720	492,480
Contribution margin	32,000	3.42	109,440	15.39	492,480	601,920
Fixed costs			30,580		617,110	647,690
Income (loss) before taxes			78,860		(124,630)	(45,770)
Income taxes (tax benefit)			(31,544)		(49,852)	(18,308)
Net income (loss)			$47,316		$(74,778)	$(27,462)

3.

HENNA CO. Forecasted Contribution Income Statement
		Product T		Product O		Total
	Units	Per unit	Total	Per unit	Total
Sales	63,000	$17.1	$1,077,300	$17.1	$1,077,300	$2,154,600
Variable cost	63,000	13.68	861,840	1.71	107,730	969,570
Contribution margin	63,000	3.42	215,460	15.39	969,570	1,185,030
Fixed costs			30,580		617,110	647,690
Income (loss) before taxes			184,880		352,460	537,340
Income taxes (tax benefit)			73,952		140,984	214,936
Net income (loss)			$110,928		$211,476	$322,404