Breakeven point- Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows- B r e a k e v e n p o i n t i n s a l e s d o l l a r s = F i x e d c o s t s / C o n t r i b u t i o n m a r g i n r a t i o Requirement 1-: To compute: Break even points in sales dollars.

Question

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Answer 1

Question

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product T will experience greater decrease in profit.

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Answer 2

Question

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product T will experience greater decrease in profit.

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Answer 3

Question

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product T will experience greater decrease in profit.

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Answer 4

Question

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product T will experience greater decrease in profit.

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Answer 5

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product T will experience greater decrease in profit.

Answer 6

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

Answer 7

Chapter 21, Problem 5APSA

To determine

Concept Introduction:

Breakeven point-

Breakeven point is the point where total revenues are equal to total costs. Total cost includes fixed costs as well as variable costs. It is calculated as follows-

Breakeven point in sales dollars = Fixed costs / Contribution margin ratio

Requirement 1-:

To compute:

Break even points in sales dollars.

Answer 8

Expert Solution

Answer to Problem 5APSA

Product T

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product O

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Product T

Given,

Fixed costs = $125,000
Sales = $2,000,000
Contribution margin = $400,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $400,000 / $2,000,000Contribution margin ratio = 20%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $125,000 20% Breakeven point in sales dollars =$625,000

Product TT

Given,

Fixed costs = $1,475,000
Sales = $2,000,000
Contribution margin = $1,750,000

Contribution margin ratio = Contribution margin / SalesContribution margin ratio = $1,750,000 / $2,000,000Contribution margin ratio = 87.5%

Breakeven point is calculated as follows-

Breakeven point in sales dollars = Fixed costs Contribution margin ratio Breakeven point in sales dollars = $1,475,000 87.5% Breakeven point in sales dollars =$1,685,715

Conclusion:

Thus, breakeven point in sales dollars is calculated.

Answer 13

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 14

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 2-:

To prepare:

Forecasted contribution margin income statement.

Answer 15

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	1,200,000	1,200,000
Variable costs	960,000	150,000
Contribution margin	240,000	1,050,000
Fixed costs	125,000	1,475,000
Income before tax	115,000	(425,000)
Tax on income (32%)	36,800	136,000
Net income / (Loss)	78,200	(289,000)

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $32Variable costs = 960,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $960,000Contribution margin = $240,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $240,000 − $125,000Income before tax = $115,000

Tax on income = Income before tax * Tax rateTax on income = $115,000 * 32%Tax on income = $36,800

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $115,000 − $36,800Net income = $78,200

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 30,000 * $40Sales = $1,200,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 30,000 * $5.00Variable costs = $150,000

Contribution margin = Sales – Variable costsContribution margin = $1,200,000 − $150,000Contribution margin = $1,050,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $1,050,000 − $1,475,000Income before tax = ($425,000)

Tax on income = Income before tax * Tax rateTax on income = $425,000 * 32%Tax on income = $136,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = ($425,000) − $136,000Net income = ($289,000)

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 20

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 21

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 3-:

To prepare:

Forecasted contribution margin income statement.

Answer 22

Expert Solution

Answer to Problem 5APSA

Henna Company
Forecasted contribution margin income statement

Particulars	Product T	Product O
Sales	2,400,000	2,400,000
Variable costs	1,920,000	300,000
Contribution margin	480,000	2,100,000
Fixed costs	125,000	1,475,000
Income before tax	355,000	625,000
Tax on income (32%)	113,600	200,000
Net income / (Loss)	241,400	425,000

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Product T

Given, Fixed costs = $125,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 1,600,000 / 50,000Variable cost per unit = $32

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $32Variable costs = 1,920,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $1,920,000Contribution margin = $480,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $480,000 − $125,000Income before tax = $355,000

Tax on income = Income before tax * Tax rateTax on income = $355,000 * 32%Tax on income = $113,600

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $355,000 − $113,600Net income = $241,400

Product O

Given, Fixed costs = $1,475,000

Selling price per unit = Sales / No. of unitsSelling price per unit = 2,000,000 / 50,000Selling price per unit = $40

Sales = No. of units * Selling per unitSales = 60,000 * $40Sales = $2,400,000

Variable cost per unit = 250,000 / 50,000Variable cost per unit = $5.00

Variable costs = No. of units * Variable cost per unitVariable costs = 60,000 * $5.00Variable costs = $300,000

Contribution margin = Sales – Variable costsContribution margin = $2,400,000 − $300,000Contribution margin = $2,100,000

Income before tax = Contribution margin – Fixed costsIncome before tax = $2,100,000 − $1,475,000Income before tax = $625,000

Tax on income = Income before tax * Tax rateTax on income = $625,000 * 32%Tax on income = $200,000

Net income is calculated as follows-

Net income = Income before tax − Tax on incomeNet income = $625,000 − $200,000Net income = $425,000

Conclusion:

Thus, contribution margin income statement is prepared.

Answer 27

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.

Explanation of Solution

The requirement is explained in the answer.

Conclusion:

Thus, Product T will experience greater decrease in profit.

Answer 28

To determine

Concept Introduction:

Contribution margin income statement-

It is a statement wherein all the variable costs are deducted from the sales to get the contribution margin and after getting contribution margin, fixed expenses are deducted from contribution margin to get net income or loss.

Requirement 4-:

To Explain:

To explain which product would experience greater decrease in profit.

Answer 29

Expert Solution

Answer to Problem 5APSA

When sales are increased, there will be improvement in income in case of product T as it will earn more contribution margin per unit as compared to product O. The operating leverage of given items will yield same result.