Question 1

Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at $74 and have variable costs of $48 each. The motorcycle helmets are priced at $215 and have variable costs of $130 each. Total fixed cost for Head-First as a whole equals $60,000 (includes all fixed factory overhead and fixed selling and administrative expense). Next year, Head-First expects to sell 4,850 bicycle helmets and 1,940 motorcycle helmets.

Refer to the list below for the exact wording of text items within your income statement.

Amount Descriptions
Operating income
Operating loss
Sales
Total contribution margin
Total fixed expense
Total variable expense

1. Form a package of bicycle and motorcycle helmets based on the sales mix expected for the coming year.

Product	Price	Unit Variable Cost	Unit Contribution Margin	Sales Mix	Package Contribution Margin
Bicycle helmet
Motorcycle helmet
Package total

2. Calculate the break-even point in units for bicycle helmets and for motorcycle helmets.

Break-Even Bicycle Helmets:
Break-Even Motorcycle Helmets	:

Check your answer by preparing a contribution margin income statement. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Head-First Company

Contribution Margin Income Statement

At Break-Even Point

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Question 2

Head-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head- First expects to produce total revenue of $575,000 and incur total variable cost of $400,000. Total fixed cost is expected to be $60,500.

Refer to the list below for the exact wording of text items within your income statement.

Amount Descriptions
Operating income
Operating loss
Sales
Total contribution margin
Total fixed expense
Total variable expense

. Calculate the break-even point in sales dollars for Head-First. Round the contribution margin ratio to four decimal places and sales to the nearest dollar.

The break-even point in sales equals .

Check your answer by preparing a contribution margin income statement. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Head-First Company

Contribution Margin Income Statement

At Break-Even Sales Dollars

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