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Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Variable cost is 60% of the sales price: contribution margin is 40% of the sales price. Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Head-First must make to break even by using the break-even point in sales equation. 2. Check your answer by preparing a contribution margin Income statement based on the break-even point in sales dollars.
Expert Answer
1. Break Even point = Fixed Cost / Contribution Margin Ratio
=$ 49,500 / 40%
= $123,750
2.
| Sales | 123,750.00 |
| Less : Variable Cost (60% * Sales) | 74,250.00 |
| Contribution Margin (40% * Sales) | 49,500.00 |
| Less : Fixed Cost | 49,500.00 |
| Profit |
