Kincaid Company sells flags with team logos. Kincaid has fixed costs of $639,600 per year plus variable costs of $4.20 per flag. Each flag sells for $12.00. Use the income statement equation approach to compute the number of flags Kincaid must sell each year to break even. Use the contribution margin ratio CVP formula to compute the dollar sales Kincaid needs to earn $32,500 in operating income for 2007. Prepare Kincaid’s contribution margin income statement for the year ended December 31, 2007, for sales of 70,000 flags. Cost of goods sold is 60% of variable costs. Operating costs make up the rest of variable costs and all of fixed costs. The company is considering an expansion that will increase fixed costs by 20% and variable costs by 30 cents per flag. Compute the new breakeven point in units and in dollars. Should Kincaid undertake the expansion? Give your reason.
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