# Managerial Accounting: P18-5A Vanna Co. produces and sells two products

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Managerial Accounting

P18-5A (Req 1-3 only)

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 58,000 units of each product. Sales and costs for each product follow.

Product T Product O

Sales 974,400 974,400

Variable costs 779,520 194,880

Contribution margin 194,880 779,520

Fixed costs 46,880 631,520

Income before taxes 148,000 148,000

Income taxes (32% rate) 47,360 47,360

Net income 100,640 100,640

1. Compute the break-even point in dollar sales for each product. (Enter CM ratio as percentage rounded to 2 decimal places.)

2. Assume that the company expects sales of each product to decline to 41,000 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. (Enter Losses and Tax benefits with a minus sign, and all the remaining values as positive numbers.)

3. Assume that the company expects sales of each product to increase to 72,000 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). (Enter all values as positive.)

Managerial Accounting

P18-5A (Req 1-3 only)

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 58,000 units of each product. Sales and costs for each product follow.

Product T Product O

Sales 974,400 974,400

Variable costs 779,520 194,880

Contribution margin 194,880 779,520

Fixed costs 46,880 631,520

Income before taxes 148,000 148,000

Income taxes (32% rate) 47,360 47,360

Net income 100,640 100,640

1. Compute the break-even point in dollar sales for each product. (Enter CM ratio as percentage rounded to 2 decimal places.)

2. Assume that the company expects sales of each product to decline to 41,000 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. (Enter Losses and Tax benefits with a minus sign, and all the remaining values as positive numbers.)

3. Assume that the company expects sales of each product to increase to 72,000 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). (Enter all values as positive.)

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