McKnight Company sells flags with team logos. McKnight has fixed costs of $180,000 per year plus variable costs of $4.00 per flag. Each flag sells for $10.00. Read the requirements LOADING... . Requirement 1. Use the equation approach to compute the number of flags McKnight must sell each year to break even. First, select the formula to compute the required sales in units to break even. - - = Target profit Requirements 1. Use the equation approach to compute the number of flags McKnight must sell each year to break even. 2. Use the contribution margin ratio approach to compute the dollar sales McKnight needs to earn $18,000 in operating income for the year. (Round the contribution margin ratio to two decimal places.) 3. Prepare McKnight's contribution margin income statement for the year ended December 31, for sales of 23,000 flags. (Round your final answers up to the next whole number.) 4. The company is considering an expansion that will increase fixed costs by 40% and variable costs by $1.00 per flag. Compute the new breakeven point in units and in dollars. Should McKnight undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

McKnight

Company sells flags with team logos.

McKnight

has fixed costs of

$180,000

per year plus variable costs of

$4.00

per flag. Each flag sells for

$10.00.

Read the

requirements

Requirement 1. Use the equation approach to compute the number of flags

McKnight

must sell each year to break even.

First, select the formula to compute the required sales in units to break even.

Target profit

Requirements

1.	Use the equation approach to compute the number of flags McKnight must sell each year to break even.
2.	Use the contribution margin ratio approach to compute the dollar sales McKnight needs to earn $18,000 in operating income for the year. (Round the contribution margin ratio to two decimal places.)
3.	Prepare McKnight's contribution margin income statement for the year ended December 31, for sales of 23,000 flags. (Round your final answers up to the next whole number.)
4.	The company is considering an expansion that will increase fixed costs by 40% and variable costs by $1.00 per flag. Compute the new breakeven point in units and in dollars. Should McKnight undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)

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