Question

Head-First Company plans to sell 5,100 bicycle helmets at $72 each in the coming year. Variable cost is 62% of the sales price; contribution margin is 38% of the sales price. Total fixed cost equals $50,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Head-First must make to earn operating income of $73,120 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1

Answer 1

Answer:

1. Operating income required=$73,120

Hence contribution required=(Operating income+Fixed Cost)

=(73,120+50,000)=$123,120

Selling Price per unit =$72

Contribution=(38%*72)=$27.36

Hence (27.36*units sold)=123,120

Hence units sold=4500

Sales revenue that Head-first must make=(4500*72)=$324,000

2. Contribution margin income statement

Sales= 324,000

Less:Variable cost(62%*324,000)= 200,880

Contribution= 123,120

Less:fixed cost= 50,000

Operating income =73,120