Question

This Question: 40 pts 1 of 7 (1 complete) This Test: 200 pts possible o Toler Company sells flags with learn logos. Toler has lixed costs of $468.000 per year plus variable costs of $5.20 per Mag. Each lag sells for $13.00 Read the requirement Begin by showing the formula and then entering the amounts to calculate the required sales dollars to sam $15,600 in operating income. (Round the required sales in dollars up to the nearest whole dollar. For example, $10.25 would be rounded to $11. Abbreviation used: CM = contribution margin = Required sales in dollars Requirement 3. Prepare Toler's contribution margin income statement for the year ended December 31, 2018, for sales of 54,000 flags. (Round your final answers up to the next whole number.) (Use parentheses or a minus sign for an operating loss.) Toler Company Contribution Margin Income Statement Year Ended December 31, 2018 Operating Income (Loss) Requirement 4. The company is considering an expansion that will increase fixed costs by 20% and variable costs by $1.30 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 nurnber.) (Use the equation approach.) Begin by selecting the formula to compute the required sales in units to break even under the expansion plan. 1-1 Target profit Rearrange the formula you determined above and compute the required number of flags to break even under the expansion plan. Under the expansion plan, the breakeven point in units would be flags. Under the expansion plan, the breakeven point in dollars would be $ Should Toler undertake the expansion? Give your reasoning Toler should only undertake the expansion if expected profits from the expansion the expected costs. Choose from any list or enter any number in the input fields and then continue to the next question. ?

Answer 1

1.
Let us rearrange the equation to determine the break even point.

Sales revenue = Selling price per unit × Number of products sold

Variable costs = Variable cost per unit × Number of products sold

Break even point is a date where, no profit, no loss.

Profit on break even = $0

Therefore,
(Selling price per unit × Number of products sold) - (Variable cost per unit × Number of products sold) - Fixed costs = Targeted profit

Let the number of unit sold be 'X'.

($13 × X) - ($5.20 × X) - $468,000 = 0

$13X - $5.20X = $468,000
$7.80X = $468,000
X = $468,000/$7.80 = 60,000 units

Therefore,
The number of flags Toler must sell each year to break even is 60,000.

2.
Contribution margin = Contribution per unit (Selling price per unit - Variable cost per unit) / Net sales per unit = $7.80/ $13 = 60%
Using Contribution margin ratio approach, the formula for computing the required sales dollar is,
Fixed costs + Desired profit / Contribution margin = Required sales in dollars
($468,000 + $15,600)/ 60%
= $806,000

Sales dollars to earn $15,600 operating income = $806,000

3.

Toler Company Contribution Margin Income Statement Year ended December 31, 2018 Sales ($13 × 54,000) $702,000 Variable costs ($5.20 54,000) $280,800 Contribution margin $421,200 Fixed costs 468,000 Operating loss $46,800

4.
As per expansion plan,

Fixed costs increased by 20%
Hence, new fixed costs = $468,000 × 120% = $561,600

Variable costs increased by $1.30 per flag.
Hence, new variable costs per unit = $5.20 + $1.30 = $6.50

Let the number of units sold be 'X'

New break even point in units = (Selling price per unit × Number of products sold) - (Variable cost per unit × Number of products sold) - Fixed costs
= $13X - $6.50X - $561,600
= $6.50X = $561,600
X = $561,600/ $6.50 = 86,400

New break even point is 86,400 flags

Break even sales dollars = Fixed costs / *Contribution margin

$561,600/ 50% = $1,123,200

Sales dollars to break even $1,123,200.

*[Contribution margin = Contribution per unit (Selling price per unit - Variable cost per unit) / Net sales per unit
= $6.50 / $13 = 50%]