Shol 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 51,000 units of each product. Sales and costs for each product follow.

Required
1. Compute the break-even point in dollar sales for each product.
2. Assume that the company expects sales of each product to decline to 40,000 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 34% tax rate). Also, assume that any loss before taxes yields a 34% tax savings.
3. Assume that the company expects sales of each product to increase to 65,000 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 shown with columns for each of the two products (assume a 34% tax rate).
Analysis Component
4. If sales greatly decrease, which product would experience a greater loss? Explain.
5. Describe some factors that might have created the different cost structures for these twoproducts.

Transcribed Image Text:

Product T Product O 1,632000255,000 Variable costs . Contribution margin Fixed costs income before taxes .PPRAO Income taxes (34% rate) . 408,000 785.000 127.500 1504,500 280,500 280,500 95.370 95.370