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 51,000 units of each product. Sales and costs for each product follow.

	Product T					Product O
Sales		$	821,100				$	821,100
Variable costs			492,660					82,110
Contribution margin			328,440					738,990
Fixed costs			187,440					597,990
Income before taxes			141,000					141,000
Income taxes (32% rate)			42,300					42,300
Net income		$	98,700				$	98,700

2. Assume that the company expects sales of each product to decline to 34,000 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 30% tax rate). Also, assume that any loss before taxes yields a 30% tax benefit. (Round "per unit" answers to 2 decimal places. Enter losses and tax benefits, if any, as negative values.)
2. Assume that the company expects sales of each product to decline to 34,000 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 30% tax rate). Also, assume that any loss before taxes yields a 30% tax benefit. (Round "per unit" answers to 2 decimal places. Enter losses and tax benefits, if any, as negative values.) HENNA CO. Forecasted Contribution Margin Income Statement Product T Producto Total Units $ Per unit Total $ Per unit Total $ 0 $ olo 0 0 Contribution margin Olo 0 Net income (loss)

Answer 1

2.

		Product T	Product O	Total
	Units	$ per unit	Total	$ per unit	Total
Sales	34000	$16.10	$547,400	$16.10	$547,400	$1,094,800
Variable cost	34000	$9.66	$328,440	$1.61	$54,740	$383,180
Contribution margin	34000	$6.44	$218,960	$14.49	$492,660	$711,620
Fixed cost			$187,440		$597,990	$785,430
Income (Loss) before taxes			$31,520		-$105,330	-$73,810
Income tax (32% rate)			$9,456		$31,599	$22,143
Net income			$22,064		-$73,731	-$51,667