Letter Co. produces and sells two products, T and O. It manufactures these produ
ID: 2389392 • Letter: L
Question
Letter 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 50,000 units of each product. Sales and costs for each product follow.Product T Product O
Sales $ 800,000 $ 800,000
Variable costs 560,000 100,000
Contribution margin 240,000 700,000
Fixed costs 100,000 560,000
Income before taxes 140,000 140,000
Income taxes (32% rate) 44,800 44,800
Net income $ 95,200 $ 95,200
references
11.
value:
5 points
Problem 22-5A Part 1
Required:
1.
Compute the break-even point in dollar sales for each product. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount. Omit the "$" sign in your response.)
Product T $
Product O $
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12.
value:
5 points
Problem 22-5A Part 2
2.
Assume that the company expects sales of each product to decline to 33,000 units next year with no change in unit sales 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 32% tax rate). Also, assume that any loss before taxes yields a 32% tax savings. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar amount. Input all amounts as positive values except losses and tax savings on losses, which should be indicated by a minus sign.)
LETTER CO.
Forecasted Contribution Margin Income Statement
Product T Product O
$ $
Net income/loss $ $
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13.
value:
10 points
Problem 22-5A Part 3
3.
Assume that the company expects sales of each product to increase to 64,000 units next year with no change in unit sales 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 32% tax rate). (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar amount. Input all amounts as positive values except losses which should be indicated by minus sign. Omit the "$" sign in your response.)
LETTER CO.
Forecasted Contribution Margin Income Statement
Product T Product O
$ $
$ $
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Explanation / Answer
Ryan Company is the first set of numbers.............Priest Company is the second set of numbers ______________________________________… Data from the current year-end balance sheets Assets Cash $18,500 $34,000 Accounts receivable, net 37,400 55,400 Current notes receivable (trade) 9,800 7,200 Merchandise inventory 84,940 132,500 Prepaid expenses 5,300 7,800 Plant assets, net 340,000 308,400 _____________________________________… Total assets $ 495,940 $ 545,300 _____________________________________… Liabilities and Equity Current liabilities $68,340 $93,300 Long-term notes payable 81,800 113,000 Common stock, $5 par value 200,000 226,000 Retained earnings 145,800 113,000 _____________________________________… Total liabilities and equity $495,940 $545,300 _____________________________________… Data from the current year’s income statement Sales $790,000 $909,200 Cost of goods sold 588,100 652,500 Interest expense 8,100 12,000 Income tax expense 15,185 25,100 Net income 178,615 219,600 Basic earnings per share 4.47 4.86 Beginning-of-year balance sheet data Accounts receivable, net $31,800 $56,200 Current notes receivable (trade) 0 0 Merchandise inventory 63,600 113,400 Total assets 448,000 362,500 Common stock, $5 par value 200,000 230,000 Retained earnings 105,300 91,600 MY ANSWERS: FIRST ONE: Ryan Company SECOND ONE: Priest Company A. Current ratio 2.3 to 1 ...................... 2.5 to 1 B. Acid-test ratio 1.0 to 1 ......................1.0 to 1 C. Accounts receivable turnover 22.8 times ......................16.3 times D. Inventory turnover 7.9 times .............................5.3 times E. Days' sales in inventory 52.7 days ..................74.1 days F. Days' sales uncollected 17.3 days ....................22.2 days A. Profit margin ratio 22.6% .....................24.2% B. Total asset turnover 1.7 times .....................2.0 times C. Return on total assets 37.8% ....................48.4% D. Return on common stockholders' ezuity 89.3% ..............74.6% E. Price-earnings ratio 1.1..................1.0 F. Dividend yield 0% ..................0%
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