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 43,000 units of each product. Sales and costs for each product follow. Sales Variable costs Contribution margin Fixed costs Income before taxes Income taxes (30% rate) Net income Product T $761,100 608,880 152, 220 33,220 119,000 35,700 $ 83,300 Product o $761,100 76,110 684,990 565,990 119,000 35,700 $ 83,300 3. Assume that the company expects sales of each product to increase to 57,000 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 30% tax rate). (Round "per unit" answers to 2 decimal places.) Total HENNA CO. Forecasted Contribution Margin Income Statement Product T Producto Units $ Per unit Total $ Per unit Total 57,000 $ 17.70 $ 1,008,900 $ 17.70 $ 1,008,900 57,000 $ 14.16 807,120 1.77 100,890 57,000 $ 4.50 256,500 $ 2,017,800 908,010 Sales Variable cost Contribution margin Fixed costs Income before taxes Income taxes (tax benefit) Net income (loss) 256,500 $ 256,500

Answer 1

2	Henna Co.
	Forecasted Contribution margin Income Statement
			Product T		Product O	Total
		Units	per unit	Total	per unit	Total
	Sales	26,000	$         17.70	$   4,60,200	$    17.70	$     4,60,200	$     9,20,400
Less:	Variable expenses	26,000	$         14.16	$   3,68,160	$       1.77	$         46,020	$     4,14,180
	Contribution margin	26,000	$            3.54	$       92,040	$    15.93	$     4,14,180	$     5,06,220
Less:	Fixed cost			$       33,220		$     5,65,990	$     5,99,210
	Income before tax			$       58,820		$   -1,51,810	$       -92,990
Less:	Tax/ Tax savings (@30%)			$       17,646		$       -45,543	$       -27,897
	Net Income (loss)			$       41,174		$   -1,06,267	$       -65,093
3	Henna Co.
	Forecasted Contribution margin Income Statement
			Product T		Product O	Total
		Units	per unit	Total	per unit	Total
	Sales	57,000	$         17.70	$ 10,08,900	$    17.70	$   10,08,900	$   20,17,800
Less:	Variable expenses	57,000	$         14.16	$   8,07,120	$       1.77	$     1,00,890	$     9,08,010
	Contribution margin	57,000	$            3.54	$   2,01,780	$    15.93	$     9,08,010	$   11,09,790
Less:	Fixed cost			$       33,220		$     5,65,990	$     5,99,210
	Income before tax			$   1,68,560		$     3,42,020	$     5,10,580
Less:	Tax/ Tax savings (@30%)			$       50,568		$     1,02,606	$     1,53,174
	Net Income (loss)			$   1,17,992		$     2,39,414	$     3,57,406
	Workings:
		Product T	Product O
	Selling price per unit:
(i)	Sales	$   7,61,100	$   7,61,100
(ii)	Number of units sold	43,000	43,000
(i) / (ii)	Selling price per unit	$         17.70	$         17.70
	Variable cost per unit:
(i)	Variable cost	$   6,08,880	$       76,110
(ii)	Number of units sold	43,000	43,000
(i) / (ii)	Variable cost per unit	$         14.16	$            1.77
	Contribution margin per unit:
(i)	Contribution margin	$   1,52,220	$   6,84,990
(ii)	Number of units sold	43,000	43,000
(i) / (ii)	Contribution margin per unit	$            3.54	$         15.93

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