Question

Head-First Company plans to sell 5,800 bicycle helmets at $76 each in the coming year. Unit variable cost is $44 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,600 (includes fixed factory overhead and fixed selling and administrative expense).

Answer 1

1. 4,350 helmets

Step-by-step explanation:

1. The computation of the number of helmets is shown below:

= (Total fixed cost + operating income) ÷ (Contribution margin per unit)

where,

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

= $76 - $44

= $32

So, it would be

= ($49,600 + $89,600) ÷ ($32)

= ($139,200) ÷ ($32)

= 4,350 helmets

2. The contribution margin income statement is presented below:

Sales (4,350 × $76) $330,600

Less: Variable cost (4,350 × $44) ($191,400)

Contribution margin $139,200

Less: Total Fixed cost ($49,600)

Operating income $89,600