Question

Head-First Company plans to sell 4,400 bicycle helmets at $84 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 $60,450 (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.

1. Calculate the break-even number of helmets.

helmets

2. Check your answer by preparing a contribution margin income statement based on the break-even units. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement. If there is an operating loss, enter the amount as a negative number using a minus sign.

Head-First Company

Contribution Margin Income Statement

At Break-Even Point

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Answer 1

1) Break even point = Fixed cost/contribution margin per unit

                                 = 60450/(84-45)

Break even point = 1550 units

2) 2. Check your answer by preparing a contribution margin income statement based on the break-even units

Sales (1550*84)	130200
Variable cost (1550*45)	(69750)
Contribution margin	60450
Fixed cost	(60450)
Net operating income	0