Question

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (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.

Answer 1

Requirement 1.
Selling price per unit	$75	Given
Variable Cost per unit	$45	Given
Contribution per unit	$30	$75 - $45
Fixed Cost	$49,500	Given
Break even in units	1650	($49,500 / $30)
Break vene Number of Helmets = 1,650 units
Requirement 2.
Contribution Margin Income Statements
Sales (1,650 * $75)	$123,750
Less: Variable cost (1,650 * $45)	$74,250
Contribution Margin	$49,500
Less: Fixed Cost	$49,500
Net Operating income	$0
* In break even sales, operating income should be 0 (Zero), hence the answer is 1,650 units is right