Question

Head-First Company plans to sell 4,700 bicycle helmets at $75 each in the coming year. Product costs include:

Direct materials per helmet	$ 31
Direct labor per helmet	6.50
Variable factory overhead per helmet	2.75
Total fixed factory overhead	20,000

Variable selling expense is a commission of $3.00 per helmet; fixed selling and administrative expense totals $28,600.

	Required:
1.	Calculate the total variable cost per unit.
2.	Calculate the total fixed expense for the year.
3.	Prepare a contribution margin income statement for Head-First Company for the coming year.

Answer 1

SOLUTION: 1
	CALCULATION OF TOTAL VARIABLE COST PER UNIT
	Direct Materials Per Helmet	$                        31.00
	Direct Labor Per Helmet	$                          6.50
	Variable Factory Overhead per Helmet	$                          2.75
	Variable Selling expenses per helmet	$                          3.00
	Total Variable Cost	$                        43.25
	Answer = $ 43.25 Per Helmet
SOLUTION: 2
	CALCULATION OF TOTAL FIXED EXPENSES OF THE YEAR
	Total Fixed Factory Overhead	$               20,000.00
	Fixed Selling and administrative Expenses	$               28,600.00
	Total	$               48,600.00
	Answer = $ 48,600
SOLUTION: 3
	CONTRIBUTION MARGIN INCOME STATEMENT
	PARTICULARS	AMOUNT
	Sales (4,700 X $ 75)	$                  3,52,500
	Less: Variable Cost (4,700 X $ 43.25 per Helmet)	$                  2,03,275
	Contribution Margin	$                  1,49,225
	Less: Fixed Expenses:
	Total Fixed Factory Overhead	$                     20,000
	Fixed Selling and administrative Expenses	$                     28,600
	Net Income	$                  1,00,625