Question

Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are...

Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at $77 and have variable costs of $47 each. The motorcycle helmets are priced at $220 and have variable costs of $145 each. Total fixed cost for Head-First as a whole equals $57,000 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Head-First expects to sell 4,850 bicycle helmets and 1,940 motorcycle helmets.

Required:
1. Form a package of bicycle and motorcycle helmets based on the sales mix expected for the coming year.
2. Calculate the break-even point in units for bicycle helmets and for motorcycle helmets.
3. Check your answer by preparing a contribution margin income statement.

Homework Answers

Answer #1

1) Sales mix

Bicycle helmets Motorcycle helmets
Sales mix 4850/6790 = 71.43% 1940/6790 = 28.57%

2) Break even point :

Weighted average contribution margin = (30*71.43%+75*28.57%) = $42.8565

Break even point = 57000/42.8565 = 1330 Units

Bicycle = 1330*71.43% = 950

Motor cycle = 1330-950 = 380

3) Contribution margin income statement

Bicycle Motorcycle Total
Sales 950*77=73150 380*220 = 83600 156750
Variable cost 950*47 = 44650 380*145 = 55100 99750
Contribution margin 28500 28500 57000
Fixed cost 57000
Net operating income 0
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