Question

Head-First Company plans to sell 4,200 bicycle helmets at $71 each in the coming year. Unit variable cost is $44 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $50,000 (includes fixed factory overhead and fixed selling and administrative expense).

	Required:
1.	Calculate the number of helmets Head-First must sell to earn operating income of $67,990.
2.	Check your answer by preparing a contribution margin income statement based on the number of units calculated.

Answer 1

1) Required unit sale = (fixed cost+operating income)/Contribution margin per unit

                                   = (50000+67990)/(71-44)

Required unit sale = 4370 helmets

2) Contribution margin income statement :

Sales (4370*71)	310270
Variable cost (4370*44)	(192280)
Contribution margin	117990
Fixed cost	(50000)
Net operating income	67990