Question 1 Suppose that Head-First Company now sells both bicycle helmets and mo

Question

Question 1

Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at $74 and have variable costs of $48 each. The motorcycle helmets are priced at $215 and have variable costs of $130 each. Total fixed cost for Head-First as a whole equals $60,000 (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.

Refer to the list below for the exact wording of text items within your income statement.

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.

Check your answer by preparing a contribution margin income statement. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Head-First Company

Contribution Margin Income Statement

At Break-Even Point

1

2

3

4

5

Question 2

Head-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head- First expects to produce total revenue of $575,000 and incur total variable cost of $400,000. Total fixed cost is expected to be $60,500.

Refer to the list below for the exact wording of text items within your income statement.

. Calculate the break-even point in sales dollars for Head-First. Round the contribution margin ratio to four decimal places and sales to the nearest dollar.

The break-even point in sales equals .

Check your answer by preparing a contribution margin income statement. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Head-First Company

Contribution Margin Income Statement

At Break-Even Sales Dollars

1

2

3

4

5

Amount Descriptions Operating income Operating loss Sales Total contribution margin Total fixed expense Total variable expense

Explanation / Answer

Solution: 1. 1st Form a package of bicycle and motorcycle helmets based on the sales mix expected for the coming year. Product Price Unit Variable Cost Unit Contribution Margin Sales Mix Package Contribution Margin Bicycle helmet 74 48 26 4850 126100 Motorcycle helmet 215 130 85 1940 164900 Package total 291000 Working Notes: a b c=a-b d e=c x d Product Price Unit Variable Cost Unit Contribution Margin Sales Mix Package Contribution Margin Bicycle helmet 74 48 26 4850 126100 f Motorcycle helmet 215 130 85 1940 164900 g Package total 291000 h=f+g 2nd Break-Even Bicycle Helmets: 1000 Units Break-Even Motorcycle Helmets: 400 Units Working Notes: Breakeven package = Total Fixed Cost / Package contribution margin =$60,000/$291,000 =0.2061855670 Break-Even Bicycle Helmets = Expected sales units x Breakeven package =4850 x 0.2061855670 =999.9999 units =1000 units Break-Even Motorcycle Helmets = Expected sales units x Breakeven package =1940 x 0.2061855670 =399.9999 units =400 units 3rd. Head-First Company Contribution Margin Income Statement At Break-Even Point Bicycle Motorcycle Total Sales 74,000 86,000 160,000 Less: Variable costs 48,000 52,000 100,000 Contribution margin 60,000 Less: Fixed expenses 60,000 Operating Income 0 Working Notes: Head-First Company Contribution Margin Income Statement At Break-Even Point Bicycle Motorcycle Total Sales 74,000 86,000 160,000 [1000 x 74] [400 x 215] Less: Variable costs 48,000 52,000 100,000 [1000 x 48] [400 x 130] Contribution margin 60,000 Less: Fixed expenses 60,000 Operating Income 0 2. 1st The break-even point in sales dollars for Head-First $198,786 Working Notes: Contribution margin = Total Revenue - Total Variable cost =$575,000 - $400,000 =$175,000 Contribution margin ratio = Contribution Margin/Total revenue =$175,000/$575,000 =0.3043478 =30.4348% Breakeven sales = Total Fixed cost / Contribution margin ratio =$60,500/30.4348% =$198,785.60 =$198,786 2nd Particulars Total Sales 198,786 Less: Variable costs 138,286 Contribution margin 60,500 Less: Fixed expenses 60,500 Operating Income $0 Working Notes: Particulars Total Sales 198,786 Less: Variable costs 138,286 Balancing Fig. [198,786-60,500] Contribution margin 60,500 [198,786 x 30.4348%] Less: Fixed expenses 60,500 Operating Income 0 Please feel free to ask if anything about above solution in comment section of the question.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.