Question - Sanchez Co. sells flags with team logos. Sanchez has fixed costs of $ $602,000 per year plus variable costs of $5.50 per flag. Each flag sells for $12.50.
Requirements:
1. Compute the number of flags Sanchez must sell each year to break even.
2. Compute the dollar sales Sanchez needs to earn $70,000 in operating income.
3. Prepare Sanchez's contribution margin income statement for the year June 30, 2012, for sales of 88,000 flags. Cost of Goods sold is 60% of variable costs. Operating costs make up the rest of variable costs and all of the fixed costs.
4. The company is considering an expansion that will increase fixed costs by 20% and variable costs by $.60 cents per flag. Compute the new breakeven point in units and dollars ( round to the nearest unit for the breakeven point and the nearest dollar for the breakeven sales). Should Sanchez undertake the expansion. Give your reasoning.