Homework Help is Here – Start Your Trial Now!
Business
Accounting
Choose the product that will have the largest loss if sales greatly decrease.   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 50,000 units of each product. Sales and costs for each product follow.

Choose the product that will have the largest loss if sales greatly decrease.   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 50,000 units of each product. Sales and costs for each product follow.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Choose the product that will have the largest loss if sales greatly decrease.

 

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 50,000 units of each product. Sales and costs for each product follow.

 

 

### Financial Comparison of Product T and Product O This table presents a financial comparison between Product T and Product O. It provides a detailed breakdown of sales, costs, and net income for each product. #### Product T: - **Sales**: $800,000 - **Variable Costs**: $560,000 - **Contribution Margin**: $240,000 - **Fixed Costs**: $100,000 - **Income Before Taxes**: $140,000 - **Income Taxes (32% rate)**: $44,800 - **Net Income**: $95,200 #### Product O: - **Sales**: $800,000 - **Variable Costs**: $100,000 - **Contribution Margin**: $700,000 - **Fixed Costs**: $560,000 - **Income Before Taxes**: $140,000 - **Income Taxes (32% rate)**: $44,800 - **Net Income**: $95,200 ### Detailed Analysis: **Sales**: Both products T and O have identical sales figures at $800,000. **Variable Costs**: Remarkable differences can be seen in the variable costs with Product T incurring $560,000 compared to Product O's $100,000. **Contribution Margin**: Consequently, Product O has a significantly higher contribution margin of $700,000 compared to Product T’s $240,000. **Fixed Costs**: Conversely, Product T benefits from lower fixed costs at $100,000, whereas Product O incurs $560,000. **Income Before Taxes**: Both products end up with the same income before taxes, standing at $140,000. **Income Taxes**: With both products having the same taxable income and tax rate of 32%, they both incur income taxes of $44,800. **Net Income**: Consequently, both products yield an identical net income of $95,200. ### Conclusion Despite the differences in variable and fixed costs, both Product T and Product O achieve the same final net income. This table illustrates how different cost structures can impact the various stages of financial calculation but can still lead to an equivalent bottom line.
Transcribed Image Text:### Financial Comparison of Product T and Product O This table presents a financial comparison between Product T and Product O. It provides a detailed breakdown of sales, costs, and net income for each product. #### Product T: - **Sales**: $800,000 - **Variable Costs**: $560,000 - **Contribution Margin**: $240,000 - **Fixed Costs**: $100,000 - **Income Before Taxes**: $140,000 - **Income Taxes (32% rate)**: $44,800 - **Net Income**: $95,200 #### Product O: - **Sales**: $800,000 - **Variable Costs**: $100,000 - **Contribution Margin**: $700,000 - **Fixed Costs**: $560,000 - **Income Before Taxes**: $140,000 - **Income Taxes (32% rate)**: $44,800 - **Net Income**: $95,200 ### Detailed Analysis: **Sales**: Both products T and O have identical sales figures at $800,000. **Variable Costs**: Remarkable differences can be seen in the variable costs with Product T incurring $560,000 compared to Product O's $100,000. **Contribution Margin**: Consequently, Product O has a significantly higher contribution margin of $700,000 compared to Product T’s $240,000. **Fixed Costs**: Conversely, Product T benefits from lower fixed costs at $100,000, whereas Product O incurs $560,000. **Income Before Taxes**: Both products end up with the same income before taxes, standing at $140,000. **Income Taxes**: With both products having the same taxable income and tax rate of 32%, they both incur income taxes of $44,800. **Net Income**: Consequently, both products yield an identical net income of $95,200. ### Conclusion Despite the differences in variable and fixed costs, both Product T and Product O achieve the same final net income. This table illustrates how different cost structures can impact the various stages of financial calculation but can still lead to an equivalent bottom line.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Cash Flows
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS