Question

Head-First Company plans to sell 4,700 bicycle helmets at $75 each in the coming year. Product costs include:

Direct materials per helmet	$ 31
Direct labor per helmet	6.50
Variable factory overhead per helmet	2.75
Total fixed factory overhead	20,000

Variable selling expense is a commission of $3.00 per helmet; fixed selling and administrative expense totals $28,600.

	Required:
1.	Calculate the total variable cost per unit.
2.	Calculate the total fixed expense for the year.
3.	Prepare a contribution margin income statement for Head-First Company for the coming year.

Answer 1

Solution-1
Total Variable Cost per unit
S.No.	Particulars	Amount($)
a.	Direct materials per unit	$           31.00
b.	Direct Labour per unit	$             6.50
c.	Variable factory overhead per helmet	$             2.75
d.	Variable commissioning expense per helmet	$             3.00
	Total Variable Cost per unit	$          43.25

Solution-2
Total Fixed Expenses for the Year
S.No.	Particulars	Amount($)
a.	Fixed Factory overhead	$     20,000.00
b.	Fixed Selling and Administrative Expense	$     28,600.00
	Total Variable Cost per unit	$   48,600.00

Solution-3
Contribution Margin Income Statement
S.No.	Particulars	Amount($)	Amount($)
A	Sales		$   352,500.00
B	Variable Costs
	Direct materials per unit	$   145,700.00
	Direct Labour per unit	$     30,550.00
	Variable factory overhead per helmet	$     12,925.00
	Variable commissioning expense per helmet	$     14,100.00	$   203,275.00
C	Contribution ( A-B)		$   149,225.00
D	Fixed Costs
	Fixed Factory overhead	$     20,000.00
	Fixed Selling and Administrative Expense	$     28,600.00	$     48,600.00
E	Net Income (C-D)		$ 100,625.00

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