Question

Head-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head- First expects to produce total revenue of $575,000 and incur total variable cost of $400,000. Total fixed cost is expected to be $60,500. Required: 1. Calculate the break-even point in sales dollars for Head-First. Round the contribution margin ratio to four decimal places and sales to the nearest dollar. 2. Check your answer by preparing a contribution margin income statement

Answer 1

Requirement 1

Break-even sales

$ 198,786

Working:

Sales revenue    A	$     575,000.00
Variable costs	$     400,000.00
Contribution margin     B	$     175,000.00
Contribution margin Ratio   B/A	30.4348%
Fixed cost	$       60,500.00
Break-even sales (60,500/30.4348%)	$     198,785.60

Requirement 2

Head-First Company
Contribution Margin Income Statement
At Break-Even Sales Dollars
Sales revenue	$        198,786
Variable costs $198,786*(100-30.4348)	$        138,286
Contribution margin	$          60,500
Fixed cost	$          60,500
Net operating income	$                   -