Question

# Break-Even Point in Sales Dollars Amount Descriptions Operating income Calculate the sales revenue that Head-First must...

Break-Even Point in Sales Dollars

Amount Descriptions

Operating income

Calculate the sales revenue that Head-First must make to break even by using the break-even point in sales equation.

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. Variable cost is 60% of the sales price; contribution margin is 40% of the sales price. Total fixed cost equals \$49,500 (includes fixed factory overhead and fixed selling and administrative expense).

 Required: 1. Calculate the sales revenue that Head-First must make to break even by using the break-even point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the break-even point in sales dollars.

1. Break even point is the point where total sales is equal to total costs. There is no profit no loss.

Break even point in sales = Fixed costs/ contribution margin ratio

Break even point in sales = 49,500/40%

= \$123,750

2. Statement showing net income using break even sales:

 Particulars Amt in \$ Sales revenues 123,750 Less Variable costs (123,750 × 60%) (74,250) Total contribution margin 49,500 Less Fixed costs (49,500) Net income 0

As the net income is 0(zero), it shows the sales revenues of \$ 123,750 is break even sales.

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