Question

Toler Company sells flags with team logos. Toler has fixed costs of $900,000 per year plus variable costs of $10.00 per flag. Each flag sells for $25.00. Read the requirements. Require 1 Requirements - X - to break even. First, se 1 = Target profit Rearrar In. The nu 1. Use the equation approach to compute the number of flags Toler must sell each year to break even. 2. Use the contribution margin ratio approach to compute the dollar sales Toler needs to earn $75,000 in operating income for 2018. (Round the contribution margin ratio to two decimal places.) 3. Prepare Toler's contribution margin income statement for the year ended December 31, 2018, for sales of 52,000 flags. (Round your final answers up to the next whole number.) 4. The company is considering an expansion that will increase fixed costs by 30% and variable costs by $2.50 per flag. Compute the new breakeven point in units and in dollars. Should Toler undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.) Require operatir lo earn $75,000 in Begin b operatir to $11. earn $75,000 in 10.25 would be rounded Print Print Done Done Require 31, 2018, for sales of amma tign for an operating 52.UUU hagurumu uur mur UroVoroup 52,000 hayo loss.)

Answer 1

1.
Sales Revenue - Variable Costs - Fixed Costs = Target Profit
$25x - $10x - $900000 = 0
x = 60000 units to break even

2.
Required Sales in Dollars = (Fixed COsts + Target Profit) / CM Ratio
= ($900000 + 75000) / 60% = $1625000
CM Ratio = 15/25 = 60%

3.

Sales Revenue	$   13,00,000
Variable Costs	$     5,20,000
Contribution Margin	$     7,80,000
Fixed Costs	$     9,00,000
Net Operating Income	$    -1,20,000

4.
Sales Revenue - Variable Costs - Fixed Costs = Target Profit
$25x - $12.5x - $900000x1.3 = 0
x = 93600 units to break even

Break even point in dollars = 93600 x $25 = $2340000

Toler should only undertake the expansion if expected profits from expansion are greater than expected costs