Question

QUESTION 1

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.

Amount Descriptions

Refer to the list below for the exact wording of text items within your income statement.

Amount Descriptions
Operating income
Operating loss
Sales
Total contribution margin
Total fixed cost
Total variable cost

Sales Revenue

1. Calculate the sales revenue that Head-First must make to earn operating income of $73,120 by using the point in sales equation.

Contribution Margin Income Statement

2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Head-First Company

Contribution Margin Income Statement

Based on Sales Dollars

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QUESTION 2

Head-First Company plans to sell 4,200 bicycle helmets at $71 each in the coming year. Unit variable cost is $44 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $50,000 (includes fixed factory overhead and fixed selling and administrative expense).

	Required:
1.	Calculate the number of helmets Head-First must sell to earn operating income of $67,990.
2.	Check your answer by preparing a contribution margin income statement based on the number of units calculated.

Amount Descriptions

Refer to the list below for the exact wording of text items within your income statement.

Amount Descriptions
Operating income
Operating loss
Sales
Total contribution margin
Total fixed cost
Total variable cost

Number of Helmets

1. Calculate the number of helmets Head-First must sell to earn operating income of $67,990.

helmets

Contribution Margin Income Statement

2. Check your answer by preparing a contribution margin income statement based on the number of units calculated. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Head-First Company

Contribution Margin Income Statement

Based on Helmets Sold

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2
3
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5

Answer 1

$ Question 1 Budgeted Sales Sales Price Variable Cost Ratio Contribution Margin Ratio Total Fixed Costs 5,100 Helmets 72 Per Helmet 62% 38% 50,000 Per Year $ $ Question 1 (1) Operating Income Add : Fixed Costs Contribution Margin Contribution Margin Ratio Sales Revenue $ 73,120 $ 50,000 $ 123,120 38% $ 324,000 Question 1 (2) Head-First Company Contribution Margin Income Statement Particulars $ Sales Revenue $ 324,000 Less : Variable Costs $ (200,880) Contribution Margin $ 123,120 Less : Fixed Costs $ (50.000) Net Operating Income $ 73,120 Ꮎ Ꮎ Ꮎ Ꮎ Ꮎ Question 2 Budgeted Sales Sales Price Variable Cost Contribution Margin Total Fixed Costs 4,200 Helmets 71 Per Helmet $ $ 44 27 50,000 Per Year

Question 2 (1) Estimated Operating Income Add : Fixed Costs Contribution Margin Contribution Margin per Unit No. of Helmets $ $ $ $ 67,990 50,000 117,990 27 4,370 Helmets Question 2 (2) Head-First Company Contribution Margin Income Statement Particulars $ Sales Revenue $ 310,270 Less : Variable Costs $ (192,280) Contribution Margin $ 117,990 Less : Fixed Costs $ (50,000 Net Operating Income $ 67,990