Question

Units to Earn Target Income

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: Be sure to read the instructions on each panel for additional guidance.
1.	Calculate the number of helmets Head-First must sell to earn operating income of $81,900.
2.	Check your answer by preparing a contribution margin income statement based on the number of units calculated

Answer 1

1) Calculate the number of helmets Head-First must sell to earn operating income of $81,900.

Number of helmet sold = Fixed cost+Operating income/contribution margin per unit

= 49500+81900/(75-45)

Number of helmet sold = 4380

2) Check your answer by preparing a contribution margin income statement based on the number of units calculated

Sale (4380*75)	328500
Less: Variable cost (4380*45)	(197100)
Contribution margin	131400
Less: FIxed cost	(49500)
Operating income	81900