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

Answer:

1. Calculation of the break-even number of helmets:

Break-even point = Fixed costs / Contribution margin per unit*

= $49,500 / $30

= 1,650 helmets

Therefore, Break-even number of helmets is 1,650.

Note: Calculation of contribution margin per helmet:

Contribution margin = Unit selling price - Variable cost per unit

= $75 - $45

= $30 per helmet

2. Preparation of contribution margin income statement based on the break-even units:

Head-First Company

Income Statement (Based on Break-even units)

Particulars	Per Unit	Amount
Sales	$75	$123.750
Less: Variable Cost	$45	($74,250)
Contribution Margin	$30	$49,500
Less: Fixed Costs		$49,500
Net Operating Income		$0