Head-First Company plans to sell 4,400 bicycle helmets at $84 each in the coming

Question

Head-First Company plans to sell 4,400 bicycle helmets at $84 each in the coming year. Unit variable cost is $50.40 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $19,000 and fixed selling and administrative expense is $30,300.

Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

1. Calculate the variable cost ratio.

Variable cost ratio

2. Calculate the contribution margin ratio.

Contribution margin ratio

3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin. 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

For the Coming Year

1

Percent of Sales

2

3

4

5

6

Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3.

Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

1. Calculate the variable cost ratio.

Variable cost ratio

2. Calculate the contribution margin ratio.

Contribution margin ratio

3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin. 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

For the Coming Year

1

Percent of Sales

2

3

4

5

6

Explanation / Answer

1) Variable cost ratio = 50.40*100/84 = 60%

2) Contribution margin ratio = (84-50.40)*100/84 = 40%

3) Prepare a contribution margin income statement based on the budgeted figures for next year

Amount percent of sales Sales 369600 100% Variable cost 221760 60% Contribution margin 147840 40% Fixed expense 49300 Net operating income 98540

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