Question

Instructions Head-First Company plans to sell 5,200 bicycle helmets at $73 each in the coming year. Unit variable cost is $47 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,300 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sel to earn operating income of $66,140. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculated.

Answer 1

Particulars	Amount $
Selling price per unit	73
Less: Variable cost per unit	47
Contribution margin per unit	26

Total Fixed cost = $49,300

Desired operating income = $66,140

To achieve desired operating income we have to calculate required number of units sold

Target sales = Total fixed cost + Desired operating income / Contribution margin per unit

= $49,300 + $66,140 / $26

= $115,440 / $26

= 4,440 units

(b) To check this answer we'll prepare contribution margin income statement based on 4,440 units sold

Particulars	Amount $	Amount $
	Per unit	Total
Sales (4,440 units)	73	324,120
Less: variable cost	47	208,680
Contribution margin	26	115,440
Less: Total Fixed cost		49,300
Operating Income		66,140

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