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

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 T Contribution Margin Ratio Choose Numerator: 1 Choose Denominator: Contribution Margin Ratio Contribution margin ratio = 0 Break-even point in dollars Choose Numerator: / Choose Denominator: Break-Even Point in Dollars Break-even point in dollars / Producto Contribution Margin Ratio / Contribution margin ratio 0 Break-Even Point in Dollars 1 = Break-even point in dollars 0

Answer 1

Answer 1

Product T

Contribution Margin Ratio

	Choose Numerator	/	Choose Denominator	=	Contribution Margin Ratio
	Contribution Margin	/	Sales	=	Contribution Margin Ratio
	$328,440	/	$821,100	=	40.00 %

Break-Even Point in Dollars

	Choose Numerator	/	Choose Denominator	=	Break-Even Point in Dollars
	Total Fixed Costs	/	Contribution Margin Ratio	=	Break-Even Point in Dollars
	$187,440	/	40.00 %	=	$468,600

Product O

Contribution Margin Ratio

	Choose Numerator	/	Choose Denominator	=	Contribution Margin Ratio
	Contribution Margin	/	Sales	=	Contribution Margin Ratio
	$738,990	/	821,100	=	90 %

Break-Even Point in Dollars

	Choose Numerator	/	Choose Denominator	=	Break-Even Point in Dollars
	Total Fixed Costs	/	Contribution Margin Ratio	=	Break-Even Point in Dollars
	$597,990	/	90 %	=	$664,433

Answer 2.

Henna Co

Forcasted Contribution Margin Statement

		Product T		Product O		Total
	Units	$ Per Unit	Total	$ Per Unit	Total
Sales	34,000	$16.10	$547,400	$16.10	$547,400	$1,094,800
Variable costs	34,000	$9.66	328,440	$1.61	54,740	383,180
Contribution margin	34,000	$6.44	218,960	$14.49	492,660	711,620
Fixed costs			187,440		597,990	785,430
Income (Loss) before taxes			31,520		(105,330)	73,810
Income taxes (tax benefit)			9,456		(31,599)	22,143
Net income (Loss)			$22,064		$(73,731)	$ (51,667)

Answer 3.

Henna Co

Forcasted Contribution Margin Statement

		Product T		Product O		Total
	Units	$ Per Unit	Total	$ Per Unit	Total
Sales	65,000	$16.10	$1,046,500	$16.10	$1,046,500	$2,093,000
Variable costs	65,000	$9.66	627,900	$1.61	104,650	732,550
Contribution margin	65,000	$6.44	418,600	$14.49	941,850	1,360,450
Fixed costs			187,440		597,990	785,430
Income (Loss) before taxes			231,160		343,860	575,020
Income taxes (tax benefit)			69,348		103,158	172,506
Net income (Loss)			$161,812		$240,702	$402,514