Managerial Accounting: P18-5A Letter Co. produces and sells two products, T and O

Managerial Accounting

Problem 18-5A
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

Instructions:
1. Compute the break-even point in dollar sales for each product
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.
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%income tax rate).
4. If sales greatly decrease, which product would experience a greater loss? Explain
5. Describe some factors that might have created the different cost structures for these two products
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