Question

In: Accounting

WebbCompany sells flags with team logos. Webb has fixed costs of $360,000per year plus variable costs...

WebbCompany sells flags with team logos. Webb has fixed costs of $360,000per year plus variable costs of $16.80 per flag. Each flag sells for $24.00.

Requirement 1. Use the equation approach to compute the number of flags Webb must sell each year to break even. First, select the formula to compute the required sales in units to break even.

-

=

Target profit

Rearrange the formula you determined above and compute the required number of flags to break even.

The number of flags Webb must sell each year to break even is

.

Requirement 2. Use the contribution margin ratio approach to compute the dollar sales

Webb needs to earn $14,400 in operating income for 2018.

(Round the contribution margin ratio to two decimal places.)

Begin by showing the formula and then entering the amounts to calculate the required sales dollars to earn $14,400 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 Webb's contribution margin income statement for the year ended December 31, 2018,for sales of 40,000 flags. (Round your final answers up to the next whole number.) (Use parentheses or a minus sign for an operating loss.)

Webb 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 40 % and variable costs by $ 2.40 per flag. Compute the new breakeven point in units and in dollars. Should Webb undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.) (Use the equationapproach.)

Begin by selecting the formula to compute the required sales in units to break even under the expansion plan.

-

=

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 Webb undertake the expansion? Give your reasoning. Webb should only undertake the expansion if expected profits from the expansion

▼

are equal to

are greater than

are less than

the expected costs.

Expert Solution

Sales – Variable costs - Fixed costs = Target Profit

The number of flags Webb must sell each year to break even is

= 360,000/(24-16.80)

= 50,000 flags

2.CM Ratio = CM/Sales

= 7.2/24

=30%

(Target Profit+ Fixed costs)/CM Ratio = Required sales ion Dollars

= (14,400+360,000)/30%

= $1,248,000

Webb Company
Contribution Margin Income Statement
Year Ended December 31, 2018
Sales Revenue	960,000
Less: Variable costs	672,000
Contribution Margin	288,000
Less: Fixed Expenses	360,000
Operating Income (Loss)	(72,000)

Required sales in Dollars to break even = (360,000*1.4)/(4.8)

= 105,000 flags

Under the expansion plan, the breakeven point in units would be

= 105,000

Under the expansion plan, the breakeven point in dollars would be $

$2,520,000

are greater than

ekkarill92 answered 1 year ago

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