Question

Calculate the total variable cost per unit.

Variable cost per unit

Calculate the total fixed expense for the year.

Total fixed expense for the year

Operating income

Operating loss

Sales

Total contribution margin

Total fixed cost

Total variable cost

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Product costs include:

Direct materials per helmet	$ 30
Direct labor per helmet	8
Variable factory overhead per helmet	4
Total fixed factory overhead	20,000

Variable selling expense is a commission of $3 per helmet; fixed selling and administrative expense totals $29,500.

	Required:
1.	Calculate the total variable cost per unit.
2.	Calculate the total fixed expense for the year.
3.	Prepare a contribution margin income statement for Head-First Company for the coming year.

Answer 1

(a)
Total variable cost per unit = Direct materials + Direct labor + Variable fixed overhead + Variable selling expense = 30 + 8 + 4 +3 = $ 45
(b)
Total fixed expenses for the year = Total fixed factory overhead + Fixed selling and administrative expense = 20,000 +29,500 = 49,500
(c)
Head - First Company
Contribution Margin Income Statement
For the Coming Year
		Total	Per Unit
1	Sales (5,000 x 75)	375,000	75
2	Variable cost (5,000 x 45)	-225,000	-45
3	Contribution Margin (1-2)	150,000	30
4	Fixed expenses	-49,500
5	Net Operating Income (3-4)	100,500