Response to the following problem:
Team Spirit imprints calendars with college names. The company has fixed expenses of $1,035,000 each month plus variable expenses of $3.60 per carton of calendars. Team Spirit sells each carton of calendars for $10.50.
Required:
1. Use the income statement equation approach to compute the number of cartons of calendars Team Spirit must sell each month to break even.
2. Use the contribution margin ratio CVP formula to compute the dollar amount of monthly sales Team Spirit needs to earn $285,000 in operating income.
3. Prepare Team Spirit's contribution margin income statement for June for sales of 450,000 cartons of calendars. Cost of goods sold is 70% of variable expenses. Operating expenses make up the rest of the variable expenses and all of the fixed expenses.
4. The company is considering an expansion that will increase fixed expenses by 40% and variable expenses by one-fourth. Compute the new breakeven point in units and in dollars. Use either the income statement equation approach or the contribution margin approach.
5. How would this expansion affect Team Spirit's risk?