Response to the following problem:
Fanfare sells flags with team logos. Fanfare has fixed expenses of $678,600 per year plus variable expenses of $4.20 per flag. Each flag sells for $12.00.
Required
1. Use the income statement equation approach to compute the number of flags Fanfare must sell each year to break even.
2. Use the contribution margin ratio CVP formula to compute the dollar sales Fanfare needs to earn $32,500 in operating income.
3. Prepare Fanfare's contribution margin income statement for 20X7 for sales of 70,000 flags. Cost of goods sold is 60% of variable expenses. Operating expenses make up the rest of variable expenses and all of fixed expenses.
4. The company is considering an expansion that will increase fixed expenses by 20% and variable expenses by 30 cents per flag. Compute the new breakeven point in units and in dollars. Use either the income statement equation approach or the contribution margin approach.
5. Should Fanfare undertake the expansion? Give your reason.