Accounting Two problems – Letterman Company & Kennedy Company

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Description

#1 Letterman Company produces and sells two products: A and B in the ratio of 3A to 5B. Selling prices for A and B are, respectively, $1,200 and $240; respective variable costs are $480 and $160. The company’s fixed costs are $1,800,000 per year.

Compute the volume of sales in units of each product needed to:

Required:
a. break even.

b. earn $800,000 of income before income taxes.

c. earn $800,000 of income after income taxes, assuming a 30 percent tax rate.

d. earn 12 percent on sales revenue in before-tax income.

e. earn 12 percent on sales revenue in after-tax income, assuming a 30 percent tax rate.


#2 Kennedy Company has the following collection pattern for its accounts receivable:

40 percent in the month of sale
50 percent in the month following the sale
8 percent in the second month following the sale
2 percent uncollectible

The company has recent credit sales as follows:

April: $200,000
May: 420,000
June: 350,000

How much should the company expect to collect on its receivables in June?

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