Contribution Margin Ratio

The study case Allen Company sells flags with team logos. Allen has fixed costs of $ 583 comma 200$583,200 per year plus variable costs of $ 4.80$4.80 per flag. Each flag sells for $ 12.00$12.00. Requirements 1. Use the equation approach to compute the number of flags Allen must sell each year to break even. 2. Use the contribution margin" rel="nofollow">in ratio approach to compute the dollar sales Allen needs to earn $ 33 comma 000$33,000 in" rel="nofollow">in operatin" rel="nofollow">ing in" rel="nofollow">income for 20162016. (Round the contribution margin" rel="nofollow">in ratio to two decimal places.)3. Prepare Allen's contribution margin" rel="nofollow">in in" rel="nofollow">income statement for the year ended December 3131, 20162016, for sales of 70 comma 00070,000 flags. (Round your fin" rel="nofollow">inal answers up to the next whole number.)4. The company is considerin" rel="nofollow">ing an expansion that will in" rel="nofollow">increase fixed costs by 21 %21% and variable costs by $ 0.60$0.60 per flag. Compute the new breakeven poin" rel="nofollow">int in" rel="nofollow">in units and in" rel="nofollow">in dollars. Should Allen undertake the expansion? Give your reasonin" rel="nofollow">ing. (Round your fin" rel="nofollow">inal answers up to the next whole number.) Requirement 1. Use the equation approach to compute the number of flags Allen must sell each year to break even. First, select the formula to compute the required sales in" rel="nofollow">in units to break even. Net sales revenue - Variable costs - Fixed costs = Target profit Rearrange the formula you determin" rel="nofollow">ined above and compute the required number of flags to break even. The number of flags AllenAllen must sell each year to break even is 8100081000. Requirement 2. Use the contribution margin" rel="nofollow">in ratio approach to compute the dollar sales Allen needs to earn $ 33 comma 000$33,000 in" rel="nofollow">in operatin" rel="nofollow">ing in" rel="nofollow">income for 20162016. (Round the contribution margin" rel="nofollow">in ratio to two decimal places.) Begin" rel="nofollow">in by showin" rel="nofollow">ing the formula and then enterin" rel="nofollow">ing the amounts to calculate the required sales dollars to earn $ 33 comma 000$33,000 in" rel="nofollow">in operatin" rel="nofollow">ing in" rel="nofollow">income. (Round the required sales in" rel="nofollow">in dollars up to the nearest whole dollar. For example, $10.25 would be rounded to $11. Abbreviation used: CM = contribution margin" rel="nofollow">in.) ( Fixed costs + Target profit ) / CM ratio = Required sales in" rel="nofollow">in dollars ( $583,200 + $33,000 ) / 60.00 % = $1,027,000 Requirement 3. Prepare Allen's contribution margin" rel="nofollow">in in" rel="nofollow">income statement for the year ended December 3131, 20162016, for sales of 70 comma 00070,000 flags. (Round your fin" rel="nofollow">inal answers up to the next whole number.) (Use parentheses or a min" rel="nofollow">inus sign for an operatin" rel="nofollow">ing loss.) Allen Company Contribution Margin" rel="nofollow">in Income Statement Year Ended December 31, 2016 Sales Revenue $840,000 Variable Costs 336,000 Contribution Margin" rel="nofollow">in 504,000 Fixed Costs 583,200 Operatin" rel="nofollow">ing Income (Loss) $(79,200) The company is considerin" rel="nofollow">ing an expansion that will in" rel="nofollow">increase fixed costs by 21 %21% and variable costs by $ 0.60$0.60 per flag. Compute the new breakeven poin" rel="nofollow">int in" rel="nofollow">in units and in" rel="nofollow">in dollars. Should Allen undertake the expansion? Give your reasonin" rel="nofollow">ing. (Round your fin" rel="nofollow">inal answers up to the next whole number.) (Use the equationapproach.) Begin" rel="nofollow">in by selectin" rel="nofollow">ing the formula to compute the required sales in" rel="nofollow">in units to break even under the expansion plan. Net sales revenue - Variable costs - Fixed costs = Target profit Rearrange the formula you determin" rel="nofollow">ined above and compute the required number of flags to break even under the expansion plan. Under the expansion plan, the breakeven poin" rel="nofollow">int in" rel="nofollow">in units would be 106920106920 flags. Under the expansion plan, the breakeven poin" rel="nofollow">int in" rel="nofollow">in dollars would be $12830401283040. Should Allen undertake the expansion? Give your reasonin" rel="nofollow">ing. Allen should only undertake the expansion if expected profits from the expansion are greater than the expected costs.      

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