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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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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).

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