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Head-First Company plans to sell 5,170 bicycle helmets at $74 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). Break-even units equal 1,707.

Required:
Calculate the break-even number of helmets and check your answer by preparing a contribution margin income statement based on the break-even units.

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Answer:

Head-First Company

Break-even number of bicycle helmets = 1,707 units

Contribution Margin Income Statement based on the break-even units

Sales revenue ($74 * 1,707) = $126,318

Variable cost ($45 * 1,707) =       76,815

Contribution margin =             $49,503

Fixed costs =                           $49,500

Net operating income =            $0

Explanation:

a) Data and Calculations:

Planned sales for the coming year = 5,170 bicycle helmets

Selling price per helmet = $74

Unit variable cost = $45

Contribution margin per unit = $29 ($74 - $45)

Total fixed cost = $49,500

Break-even units = 1,707 ($49,500/$29)

Contribution Margin Income Statement based on the break-even units

Sales revenue ($74 * 1,707) = $126,318

Variable cost ($45 * 1,707) =       76,815

Contribution margin =             $49,503

Fixed costs =                           $49,500

Net operating income =            $0

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