The motorcycle helmets are priced at $220 and have variable costs of $140 each. Total fixed cost for Head-First as a whole equals $58,900 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Head-First expects to sell 5,000 bicycle helmets and 2,000 motorcycle helmets. Required: 1. Form a package of bicycle and motorcycle helmets based on the sales mix expected for the coming year. 2. Calculate the break-even point in units for bicycle helmets and for motorcycle helmets. 3. Check your answer by preparing a contribution margin income statement.

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hyderali230 hyderali230 · Answer 1 · 2020-03-27T16:01:10+01:00

Answer:

1.

Sales Ratio

Bicycle Helmet = 5000 / 7000 = 71.4%

Motorcycle Helmet = 2000 / 7000 = 28.6%

Package

Price = ( $75 x 71.4% ) + ( $220 x 28.6% ) = $116.47

Variable cost = ( $45 x 71.4% ) + ( $140 x 28.6% ) = $72.17

Contribution Margin = $116.47 - $72.17 = $44.30

2.

Breakeven point is the level of sales on which business has no profit no loss situation.

Break-even point = Fixed cost / Contribution margin = $58,900 / $44.30 = 1,329.57 units

3.

At Break-even sales operating Income should be zero

As below

Contribution margin income statement

Sales ( $116.47 x 1329.57 ) $154,855

Total variable expense ($72.17 x 1,329.57 ) $(95,955)

Total contribution margin ( $44.3 x 1329.57) $58,900

Total fixed expense $(58,900)

Operating income $0