Have problems with the steps on how to solve this problem. Break-even analysis,
ID: 2450566 • Letter: H
Question
Have problems with the steps on how to solve this problem.
Break-even analysis, different cost structures, and income calculations.
Vanna 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 53,000 units of each product. Sales and costs for each product follow.
Product T Product O
Sales $ 863,900 $ 863,900
Variable costs 604,730 86,390
Contribution margin 259,170 777,510
Fixed costs 116,170 634,510
Income before taxes 143,000 143,000
Income taxes (40% rate) 57,200 57,200
Net income $ 85,800 $ 85,800
1.Compute the break-even point in dollar sales for each product
Product T
Contribution margin ratio
Choose Numerator:
/
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
0
Product O
Contribution margin ratio
/
=
0
Break-even point in dollars
/
=
0
2. Assume that the company expects sales of each product to decline to 36,000 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 40% tax rate). Also, assume that any loss before taxes yields a 40% tax savings. (Enter Losses and Tax benefits with a minus sign, and all the remaining values as positive numbers.)
VANNA CO.
Forcasted Contribution Margin Income Statement
Product T
Product O
Total
Units
$ per unit
Total
$per unit
Tota
Contribution Margin
Net Income (loss)
3. Assume that the company expects sales of each product to increase to 67,000 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 40% tax rate). (Enter all values as positive.)
VANNA CO.
Forcasted Contribution Margin Income Statement
Product T
Product O
Total
Units
$ per unit
Total
$per unit
Total
Contribution Margin
Net Income (loss)
Product T
Explanation / Answer
1 Computation of break even point Break even point = fixed cost/contibution % Contibution % (ratio) = (Sales - variable cost)/ sales Product T Product O Contibution ratio = (863900-604730)/863900 = (863900-86390)/863900 = 30% = 90% Fixed Cost $116,170 $634,510 Contribution % 30% 90% Break even point in $ $387,233 $705,011 Solution 2 For Units 36000 Product T Product O Particulars % Rate Value in $ % Rate Value in $ Sales 16.30 586800 16.30 586800 Variable Costs 70% 11.41 410760 10% 1.63 58680 Contribution 30% 4.89 176040 90% 14.67 528120 Fixed Costs 116170 634510 Income before taxes 59870 -106390 Taxes/Tax savings 23948 -42556 Net income 35922 -63834 Solution 3 For Units 67000 Product T Product O Particulars % Rate Value in $ % Rate Value in $ Sales 16.30 1092100 16.30 1092100 Variable Costs 70% 11.41 764470 10% 1.63 109210 Contribution 30% 4.89 327630 90% 14.67 982890 Fixed Costs 116170 634510 Income before taxes 211460 348380 Taxes/Tax savings 84584 139352 Net income 126876 209028
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