2. Check your answer by preparing a contribution margin income statement based o

Question

2. Check your answer by preparing a contribution margin income statement based on the break-even point in sales dollars. 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

Head-First Company plans to sell 4,200 bicycle helmets at $67 each in the coming year. Variable cost is 66% of the sales price; contribution margin is 34% of the sales price. Total fixed cost equals $42,585 (includes fixed factory overhead and fixed selling and administrative expense).

Check your answer by preparing a contribution margin income statement based on the break-even point in sales dollars.

1. Calculate the sales revenue that Head-First must make to break even by using the break-even point in sales equation.

Head-First Company

Contribution Margin Income Statement

At Break-Even Point

Explanation / Answer

1.

Break-even revenues = Fixed cost / Contribution margin ratio

= 42,585 / 0.34

= 125,250

2.

Head-First Company

Contribution Margin Income Statement

At Break-Even Point

Revenues 125,250 Variable cost (125,250*66%) (82,665) Contribution Margin 42,585 Fixed cost (42,585) Operating income 0

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