Question

Part 1

Head-First Company plans to sell 5,200 bicycle helmets at $80 each in the coming year. Variable cost is 54% of the sales price; contribution margin is 46% of the sales price. Total fixed cost equals $56,350 (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.

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 break even by using the break-even point in sales equation.

Contribution Margin Income Statement

2. Check your answer by preparing a contribution margin income statement based on the break-even point in sales dollars. 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

At Break-Even Point

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5		_________________________    ___________________________

Part 2

Head-First Company plans to sell 5,800 bicycle helmets at $67 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 $40,710 (includes fixed factory overhead and fixed selling and administrative expense).

	Required:
1.	Calculate the break-even number of helmets.
2.	Check your answer by preparing a contribution margin income statement based on the break-even units.

Amount Descriptions

Refer to the list below for the exact wording of an amount description within your income statement.

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

Unit Break-Even Point

1. Calculate the break-even number of helmets.

helmets

Contribution Margin Income Statement

2. Check your answer by preparing a contribution margin income statement based on the break-even units. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement. If there is an operating loss, enter the amount as a negative number using a minus sign.

Head-First Company

Contribution Margin Income Statement

At Break-Even Point

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2
3
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5

Answer 1

Question (1) Question (2) $ $ 80.00 43.20 Sales Price Variable Cost 54%*80 Contribution margin 46%*80 Sales Price Less : Variable Cost Contribution margin $ $ $ 67.00 44.00 23.00 $ 36.80 Break Even Point in Units Total Fixed Cost / Unit Contribution Margin 40710/23 1770 Helmets Break Even Point in Units Total Fixed Cost / Unit Contribution Margin 56350/36.80 1531.25 Helmets $ Break Even Sales Revenue : 1770 Helmets*$67 118,590 $ Break Even Sales Revenue : 1531.25 Helmets * $80 122,500 Head First Company Contribution Margin Income Statement Sales Revenue (1531.25*80) $ 122,500.00 Less : Variable Cost (1531.25*43.20) $ 66,150.00 Contribution Margin. $ 56,350.00 Less : Fixed cost $ 56,350.00 Net Operating income $ Head First Company Contribution Margin Income Statement Sales Revenue $ 118,590.00 Less : Variable Cost $ 77,880.00 Contribution Margin. $ 40,710.00 Less : Fixed cost $ 40,710.00 Net Operating income $