# Vanna Co: Break-even analysis for two products

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Problem 5-5A: Break-even analysis, different cost structures, and income calculations L.O. C3

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, Vanna sold 54,000 units of each

product. Sales and costs for each product follow.

Product T Product O

Sales $ 2,160,000 $ 2,160,000

Variable costs 1,728,000 270,000

Contribution margin 432,000 1,890,000

Fixed costs 135,000 1,593,000

Income before taxes 297,000 297,000

Income taxes (38% rate) 112,860 112,860

Net income $ 184,140 $ 184,140

Requirement 1:

Compute the break-even point in dollar sales for each product. (Round your answer to the nearest whole dollar

amount. Omit the "$" sign in your response.)

Product T $

Product O $

Requirement 2:

Assume that the company expects sales of each product to decline to 38,000 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 shown above with columns for each of the two products (assume a 38% tax rate). Also, assume that

any loss before taxes yields a 38% tax savings. (Negative amount should be indicated by a minus sign. Round

your answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

VANNA Co.

Forecasted Contribution Margin Income Statement

Product T Product O

Sales $ $

Variable costs

Contribution margin

Fixed costs

Income before taxes

Income taxes (38%)

Net income $ $

Requirement 3:

Assume that the company expects sales of each product to increase to 60,000 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 shown above with columns for each of the two products (assume a 38% tax rate). (Negative

amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount. Omit

the "$" sign in your response.)

VANNA Co.

Forecasted Contribution Margin Income Statement

Product T Product O

Sales $ $

Variable costs

Contribution margin

Fixed costs

Income before taxes

Income taxes (38%)

Net income $ $

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#### Solution Preview

Problem 5-5A: Break-even analysis, different cost structures, and income calculations L.O. C3

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, Vanna sold 54,000 units of each product. Sales and costs for each product follow.

Product T Product O

Sales 2,160,000 2,160,000

Variable costs 1,728,000 270,000

Contribution margin 432,000 1,890,000

Fixed costs 135,000 1,593,000

Income before taxes 297,000 297,000

Income taxes (38% rate) 112,860 112,860

Net income 184,140 184,140

Requirement 1:

Compute the break-even point in dollar sales for each product. (Round your answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

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#### Solution Summary

This solution is comprised of a detailed explanation to compute the break-even point in dollar sales for each product and prepare forecasted financial results for next year following the format of the contribution margin income statement as shown above with columns for each of the two products (assume a 38% tax rate).