if sales greatly decrease which product would experience a greater loss explain 648549

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.

	Product T	Product O
Sales	$800,000	$800,000
Variable costs	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.

2. Assume that the company expects sales of each product to decline to 33,000 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 32% tax rate). Also, assume that any loss before taxes yields a 32% tax savings.

3. Assume that the company expects sales of each product to increase to 64,000 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 32% tax rate).

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 two products.