Head-First Company plans to sell 5,100 bicycle helmets at $78 each in the coming year. Variable...
Head-First Company plans to sell 5,100 bicycle helmets at $78 each in the coming year. Variable cost is 58% of the sales price; contribution margin is 42% of the sales price. Total fixed cost equals $51,240 (includes fixed factory overhead and fixed selling and administrative expense).
| Required: | |
| 1. | Calculate the sales revenue that Head-First must make to break even by using the break-even point in sales equation. |
| 2. | Check your answer by preparing a contribution margin income statement based on the break-even point in sales dollars. |
Homework Answers
1. Break-even sales = Fixed cost/Contribution margin ratio
= 51,240/42%
= 122,000
.
2.
| Sales | 122,000 |
| Variable expenses (122,000*58%) | 70,760 |
| Contribution margin | 51,240 |
| Fixed cost | 51,240 |
| Net operating income | 0 |
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