Question

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.

Answer 1

Part 1	Break even point = (Fixed cost/ Contribution margin per unit) = (49,500/30) = 1,650 units
	Contribution margin per unit = (40% *75 ) =30/unit
	Variable cost per unit = (60%*75) = 45/unit
Part 2	Contribution margin income statement
	Sales (1,650*75)	123,750
	Less : Variable cost (1,650*45)	74,250
	Total contribution margin	49,500
	less : Fixed cost	49,500
	Operating income	-
	Hence, we can see that at the break even point units, operating income is zero.