Question

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (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 $81,900.
2.	Check your answer by preparing a contribution margin income statement based on the number of units calculated.

Answer 1

1

Calculate the number of helmets Head-First must sell to earn operating income of $81,900

Sales	75	100%
Less: variable cost	-45	-60%
Contribution margin	30	40%

number of helmets Head-First must sell to earn operating income of $81,900

=(fixed cost+ desired Income) / Contribution margin per unit

=(49500+81900) /30

=131400 /30

=4380 units

number of helmets Head-First must sell to earn operating income of $81,900 =4380 units

_________________________________________________

2

Check your answer by preparing a contribution margin income statement based on the number of units calculated.

Head-First Company
Contribution Margin Income Statement
Contribution margin income statement
Sales (4380 units 75)	328500
Total variable cost (4380 units 45)	-197100
Total contribution margin	131400
Total fixed cost	-49500
Operating income	81900