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 ratio approach to compute the dollar sales Allen needs to earn $ 33 comma 000$33,000 in operating income for 20162016.
(Round the contribution margin ratio to two decimal places.)3. Prepare Allen’s contribution margin income statement for the year ended December
3131, 20162016, for sales of 70 comma 00070,000 flags. (Round your final answers up to the next whole number.)4. The company is considering an expansion that will increase fixed costs by 21 %21%
and variable costs by $ 0.60$0.60 per flag. Compute the new breakeven point in units and in dollars. Should Allen undertake the expansion? Give your reasoning. (Round your final 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 units to break even.
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.
The number of flags AllenAllen must sell each year to break even is 8100081000.

Requirement 2. Use the contribution margin ratio approach to compute the dollar sales Allen needs to earn $ 33 comma 000$33,000 in operating income for 20162016. (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 $ 33 comma 000$33,000 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.)
( Fixed costs + Target profit ) / CM ratio = Required sales in dollars
( $583,200 + $33,000 ) / 60.00 % = $1,027,000

Requirement 3. Prepare Allen’s contribution margin income statement for the year ended
December 3131, 20162016, for sales of 70 comma 00070,000 flags. (Round your final answers up to the next whole number.) (Use parentheses or a minus sign for an operating loss.)
Allen Company
Contribution Margin Income Statement
Year Ended December 31, 2016
Sales Revenue $840,000
Variable Costs 336,000
Contribution Margin 504,000
Fixed Costs 583,200
Operating Income (Loss) $(79,200)

The company is considering an expansion that will increase fixed costs by 21 %21% and variable costs by $ 0.60$0.60 per flag. Compute the new breakeven point in units and in dollars. Should Allen 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.
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 106920106920 flags.
Under the expansion plan, the breakeven point in dollars would be $12830401283040.
Should Allen undertake the expansion? Give your reasoning. Allen
should only undertake the expansion if expected profits from the expansion
are greater than the expected costs.