Head-First Company plans to sell 4,700 bicycle helmets at $75 each in the coming year. Variable cost is 64% of the sales price; contribution margin is 36% of the sales price. Total fixed cost equals $45,090 (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. |
1.
Break even point in sales = Fixed cost / Contribution margin ratio
Break even point in sales = $45,090 / 36% = $125,250
2.
Contribution Margin Income Statement | |
Sales | $125,250 |
Less: Variable cost (125,250*64%) | -80,160 |
Contribution margin | 45,090 |
Less: Fixed cost | -45,090 |
Net operating income | $0 |
Head-First Company plans to sell 4,700 bicycle helmets at $75 each in the coming year. Variable...
Head-First Company plans to sell 4,700 bicycle helmets at $75 each in the coming year. Variable cost is 64% of the sales price; contribution margin is 36% of the sales price. Total fixed cost equals $45,090 (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...
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