Brief Exercise 7-19 Break-Even Point in Units for a Multiple-Product Firm

Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The

bicycle helmets are priced at $75 and have variable costs of $45 each. 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.

Brief Exercise 7-20 Break-Even Sales Dollars for a Multiple-Product Firm

Head-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head-

First expects to produce total revenue of $570,000 and incur total variable cost of $388,000.

Total fixed cost is expected to be $58,900.

Required:

1. Calculate the break-even point in sales dollars for Head-First. (Note: Round the

contribution margin ratio to four decimal places and sales to the nearest dollar.)

2. Check your answer by preparing a contribution margin income statement.

Brief Exercise 7-23 Impact of Increased Sales on Operating Income Using the

Degree of Operating Leverage

Head-First Company had planned 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). Operating income at 5,000 units sold is $100,500. The

degree of operating leverage is 1.5. Now Head-First expects to increase sales by 10% next year.

Required:

1. Calculate the percent change in operating income expected.

2. Calculate the operating income expected next year using the percent change in operating

income calculated in Requirement 1.