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7 July, 20:00

Units to Earn Target Income 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:

Be sure to read the instructions on each panel for additional guidance.

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

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  1. 7 July, 20:11
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    1. The computation of the number of helmets sell to earn operating income is shown below:

    = (Fixed expenses + target profit) : (Contribution margin per unit)

    where,

    Contribution margin per unit = Selling price per unit - Variable expense per unit

    = $75 - $40

    = $30

    So, the number of helmets sold is

    = ($49,500 + $81,900) : ($30)

    = 4,380 helmets

    2. And, the contribution margin income statement is presented below:

    Sales (4,380 helmets * $75) $328,500

    Less: Variable cost (4,380 helmets * $45) ($197,100)

    Contribution margin $131,400

    Less: Total fixed cost (49,500)

    Net income $81,900
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