Question

In: Accounting

Toler Company sells flags with team logos. Toler has fixed costs of $ 1,680,000 per year...

Toler Company sells flags with team logos. Toler has fixed costs of $ 1,680,000 per year plus variable costs of $ 7.20 per flag. Each flag sells for $ 24.00.

Requirement 4. The company is considering an expansion that will increase fixed costs by 20 % and variable costs by $2.40 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.) (Use the equation approach.)

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

Net sales revenue

Variable costs

Fixed costs

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

how many flags?

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

.______

Solutions

Expert Solution

Answer

Break even units without expansion plan	100000	Units
Break even units with expansion plan	140000	Units

Decision : NO expansion plan must not be followed

Reasoning

As with expansion plan there is going to be increase in break even level means more efforts to reach zero level profit or loss and expansion plan will reduce contribution per unit due to increase in variable expanses by $2.40

Calculated as

Calculation of break even units Without expansion plan

Net Sale

Variable Expenses

Fixed Expense

Target Profit

Let break even units be Y at break even point target profit is Zero

so Equation will be written as

24Y

7.20y

1680000

further

16.80Y = $1680000

Break even units = Y = $168000/16.80 = 100000 Units

Calculation of break even units With expansion plan

New variable cost = $7.20+2.40 = $9.60

Fixed Cost = $1680000+20% = $2016000

New break even point will be = Fixed Cost/Selling price - Variable cost

= $2016000/(24-9.60)

= 140000 Units

Hit Thumbs up if satisfied

Have any query mention in comment section please

Thank you

ekkarill92 answered 1 year ago

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