3. Assume that the company expects sales of each product to increase to 60,000 units next year with no change in unit selling 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 35% tax rate). (Round "per unit" answers to 2 decimal places.) HENNA CO. Forecasted Contribution Margin Income Statement Product T Product O Total Units $ Per unit Total $ Per unit Total Contribution margin Net income (loss)
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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Henna 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.
Product T
Product 0
$ 800,400
640, 320
160,080
32,080
128,000
44,800
Sales
$ 800,400
Variable costs
160,080
Contribution margin
640,320
512,320
Fixed costs
128,000
44,800
$ 83,200
Income before taxes
Income taxes (35% rate)
Net income
$ 83, 200](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F239102d1-04c8-4dcb-a4a3-60cc6d722931%2Ff7a16348-4d07-4d57-9b38-1e1852218981%2Fazeuf4f_processed.png&w=3840&q=75)
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