Question - 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 46,000 units of each product. Sales and costs for each product follow.
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Product T
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Product O
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|
Sales
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$800,400
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$800,400
|
|
Variable costs
|
640,320
|
160,080
|
|
Contribution margin
|
160,080
|
640,320
|
|
Fixed costs
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32,080
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512,320
|
|
Income before taxes
|
128,000
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128,000
|
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Income taxes (35% rate)
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44,800
|
44,800
|
|
Net income
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$83,200
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$83,200
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Assume that the company expects sales of each product to decline to 29,000 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 35% tax rate). Also, assume that any loss before taxes yields a 35% tax savings.