Head-First Company plans to sell 4,200 bicycle helmets at $71 each in the coming

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.

Explanation / Answer

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

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