Question: Stam Co. produces and sells two products, BB and TT. 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.
| Product BB | Product TT |
Sales | \(800,000 | \)800,000 |
Variable cost | 560,000 | 100,000 |
Contribution margin | 240,000 | 700,000 |
Fixed costs | 100,000 | 560,000 |
Income before taxes | 140,000 | 140,000 |
Income taxes (32% rate) | 44,800 | 44,800 |
Net income | \(95,200 | \)95,200 |
Required
1. Compute the break-even point in dollar sales for each product. (Round the answer to the next whole dollar.)
2. Assume that the company expects sales of each product to decline to 33,000 units next year with no change in the unit selling price. Prepare forecasted financial results for next year following the format of the contribution margin income statement as shown here with columns for each of the two products (assume a 32% tax rate, and that any loss before taxes yields a 32% tax benefit).
3. Assume that the company expects sales of each product to increase to 64,000 units next year with no change in the unit selling prices. Prepare forecasted financial results for next year following the format of the contribution margin income statement as shown here with columns for each of the two products (assume a 32% tax rate).
Analysis Component
4. If sales greatly increase, which product would experience a greater increase in profit? Explain.
5. Describe some factors that might have created the different cost structures for these two products.
