Chapter 5 Problem Question 3 Requlred Informatlon 3. Assume that the company exp
ID: 390719 • Letter: C
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Chapter 5 Problem Question 3
Requlred Informatlon 3. Assume that the company expects sales of each product to inarease to 80,000 units next yesr The following information appilles to the questions displayed below 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 35% tax rate). (Round "per unit" answers to 2 decimal places.) Henna Co. produces and sells two products, T and O. lt manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 46,000 units of eech product Sales and costs for each product follow. HENNA CO Forecasted Contribution Margin Income Statement Product T Product O Total Units S Per unit S Per unit Total Product T Product O Sales $ 800.400 800.400 Contribution margin Variable costs 640.320 160080 E Contribution margin 160,080 640,320 512,320 Fixed costs 32,080 Net income (loss) Income before taxes 128,000 28,000 income taxes (35% rate) 44,800 44,800 Net income $ 83,200 S 83,200Explanation / Answer
Answer : For the current year company has sold 46,000 units of each product.
Total sales of Product T = $ 800,400
Total units Sold = 46,000
Selling price per product = $ 800,040/46000 = $ 17.40 (Both T & O)
Total Variable cost for product T = $ 640,320
Unit variable cost for product T = $640,320/46000 = $ 13.92
Similarly unit variable cost for Product O = $ 160080/46000 = $ 3.48
HENNA CO
FORECASTED CONTRIBUTION MARGIN STATEMENT
Product T
Product O
Total
Units
$ per unit
Total
$ per unit
Total
Sales
60,000
$17.40
$10,44,000
$17.40
$10,44,000
$20,88,000
Variable cost
60,000
$13.92
$8,35,200
$3.48
$2,08,800
$10,44,000
Contribution margin
60,000
$2,08,800
$8,35,200
$10,44,000
Fixed Cost
$32,080
$5,12,320
$5,44,400
Income before taxes
$1,76,720
$3,22,880
$4,99,600
Income tax (35%)
$61,852
$1,13,008
$1,74,860
Net Income
$1,14,868
$2,09,872
$3,24,740
HENNA CO
FORECASTED CONTRIBUTION MARGIN STATEMENT
Product T
Product O
Total
Units
$ per unit
Total
$ per unit
Total
Sales
60,000
$17.40
$10,44,000
$17.40
$10,44,000
$20,88,000
Variable cost
60,000
$13.92
$8,35,200
$3.48
$2,08,800
$10,44,000
Contribution margin
60,000
$2,08,800
$8,35,200
$10,44,000
Fixed Cost
$32,080
$5,12,320
$5,44,400
Income before taxes
$1,76,720
$3,22,880
$4,99,600
Income tax (35%)
$61,852
$1,13,008
$1,74,860
Net Income
$1,14,868
$2,09,872
$3,24,740
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