Kincaid Company sells flags with team logos. Kincaid has fixed costs of $583,200 per year plus...
Question:
Kincaid Company sells flags with team logos.
Kincaid has fixed costs of $583,200 per year plus variable costs of $4.80 per flag.
Each flag sells for $12.00.
Requirements:
- Use the equation approach to compute the number of flags Kincaid must sell each year to break even.
- Use the contribution margin ratio approach to compute the dollar sales Kincaid needs to earn $33,000 in operating income for 2012.
(Round the contribution margin to two decimal places.)
- Prepare Kincaid's contribution margin income statement for the year ended December 31, 2012, for sales of 72,000 flags.
(Round your final answers to the nearest whole number.)
- The company is considering an expansion that will increase fixed costs by 21% and variable costs by $0.60 per flag.
a. Compute the new break-even point in units and in dollars.
b. Should Kincaid undertake the expansion? Give your reasoning.
(Round your final answers to the nearest whole number.)
Cost-Volume-Profit Analysis
Management uses the cost-volume-profit analysis as a tool for targeting income. It separates the variable and fixed costs to establish the minimum sales at zero levels of net income, also known as the break-even point.
Answer and Explanation: 1
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1. Answer: The break-even point in units is 81,000 flags.
Using the equation method to solve for the break-even quantities, here are the steps:
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Cost-Volume-Profit Analysis: Definition & Examples
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Cost-volume profit analysis identifies the ideal production and pricing standards to reach company goals by comparing the cost to sales volume. Learn the formula for this analysis and the inclusion of contribution margin ratios in decision-making.
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