Head-First Company plans to sell 4,400 bicycle helmets at $78 each in the coming

Question

Head-First Company plans to sell 4,400 bicycle helmets at $78 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 $50,300 (includes fixed factory overhead and fixed selling and administrative expense).

Required: 1. Calculate the sales revenue that Head-First must make to earn operating income of $93,220 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.

Explanation / Answer

1) Required sales= (fixed cost+net operating income)/Contribution margin ratio

= (50300+93220)/.40

Required sales = 358800

2) Contribution margin income statement :

Sales 358800 Variable cost (215280) Contribution margin 143520 Fixed cost (50300) Net operating income 93220

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