Chapter 21, Problem P21.56APGA

Analyzing CVP relationships

Learning Objectives 2,3,4 2.60.00%

Crandall Company sells flags with team logos. Crandall has fixed costs of $583,200 per year plus variable costs of $4.80 per flag. Each flag sells for $12.00.

Requirements

1. Use the equation approach to compute the number of flags Crandall must sell each year to break even.
2. Use the contribution margin ratio approach to compute the dollar sales Crandall needs to earn $33,000 in operating income for 2018. (Round the contribution margin ratio to two decimal places.)
3. Prepare Crandall’s contribution margin income statement for the year ended December 31,2018, for sales of 70,000 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% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should Crandall undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)