Analyzing CVP relationships 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. Requirements 1. Use the equation approach to compute the number of flags Kincaid must sell each year to break even. 2. Use the contribution margin ratio approach to compute the dollar sales Kincaid needs to earn $32,500 in operating income for 2016. (Round the contribution margin ratio to two decimal places.) 3. Prepare Kincaid's contribution margin income statement for the year ended December 31, 2016, for sales of 78,000 flags. (Round your final answers up to the next whole number.) 4. The company is considering an expansion that will increase fixed costs by 17% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should Kincaid undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.) Solution: Requirement 1 (Net Sales Revenue - Variable Costs) - Fixed Costs = Target Profit Show (in words) the Equation for Total Net Sales Revenue Show (in words) 'Equation for Total Variable Costs Rewrite the two above Equations to Simplify Now include numbers for the Equation Above Simplify Using what you just input above, aglebraically solve for Units Requirement 2 Contribution Margin Ratio = Contribution Margin per unit / Net Sales Revenue = 1 1 = = Required Sales in Dollars Fixed Costs+Target / Contribution Margin / Requirement 3 KINCAID COMPANY Contribution Margin Income Statement For the Year Ending December 31, 2016 Sales Revenue (insert calculations here) Variable Costs Contribution Margin Fixed Costs Operating Loss insert calculations between() in the green field insert calculations between() in the green field Requirement 4 Calculate and Show Revised Variable Costs per Unit Calculate and Show Revised Fixed Costs (Net Sales Revenue - Variable Costs) - Fixed Costs = Target Profit Show (in words) the Equation for Total Net Sales Revenue Show (in words) 'Equation for Total Variable Costs Rewrite the two above Equations to Simplify Now include number for the Equation Above Simplify Using what you just input above, aglebraically solve for Units Required Sales in Dollars Required Sales in Units = = Put narrative answer below