Henna Co. produces and sells two products, T and O. It manufactures these produc

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 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 3. Assume that the company expects sales of each product to increase to 64,000 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 32% tax rate). (Round "per unit" answers to 2 decimal places.)

Explanation / Answer

ANSWER:

Forecasted Financial Results

Sales Revenue (T & O): 64,000 * $16 = $1,024,000

Variable Costs (T): ($560,000/50,000) * 64,000 = $716,800

Variable Costs (O): ($100,000/50,000) * 64,000 = $128,000

Contribution Margin (T): $4.8 * 64,000 = $307,200

Contribution Margin (O): $14 * 64,000 = $896,000

Income before Taxes (T)

$716,800 + $100,000 = $816,800

$1,024,000 – $816,800 = $207,200

Income before Taxes (O)

$128,000 + $560,000 = $688,000

$1,024,000 - $688,000 = $336,000

Income Taxes (T): (207,200/100) * 32 = $66,304

Income Taxes (O): (336,000/100) * 32 = $107,520

Net Income (T): $207,200 - $66,304 = $140,896

Net Income (O): $336,000 - $107,520 = $228,480

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