Dominico Co. produces and sells two products, BB and TT. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 120,000 units of each product. Sales and costs for each product follow.
| Product BB | Product TT |
Sales | $3,000,000 | $3,000,000 |
Variable costs | 1,800,000 | 600,000 |
Contribution margin | 1,200,000 | 2,400,000 |
Fixed costs | 600,000 | 1,800,000 |
Income before taxes | 600,000 | 600,000 |
Income taxes (35% rate) | 210,000 | 210,000 |
Net income | $ 390,000 | $ 390,000 |
Required
1. Compute the break-even point in dollar sales for each product.
2. Assume that the company expects sales of each product to decline to 104,000 units next year with no change in the unit sales price. Prepare forecasted financial results for next year following the format of the contribution margin income statement as shown here with columns for each of the two products (assume a 35% tax rate, and that any loss before taxes yields a 35% tax savings).
3. Assume that the company expects sales of each product to increase to 190,000 units next year with no change in the unit sales prices. Prepare forecasted financial results for next year following the format of the contribution margin income statement as shown here with columns for each of the two products (assume a 35% tax rate).
Analysis Component
4. If sales greatly increase, which product would experience a greater increase in profit? Explain.
5. Describe some factors that might have created the different cost structures for these two products.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.