Question

Head-First Company plans to sell 5,100 bicycle helmets at $72 each in the coming year. Variable cost is 62% of the sales price; contribution margin is 38% of the sales price. Total fixed cost equals $50,000 (includes fixed factory overhead and fixed selling and administrative expense).

Required: 1. Calculate the sales revenue that Head-First must make to earn operating income of $73,120 by using the point in sales equation.

2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.

Answer 1

Answer:

the sales revenue that Head-First must make to earn operating income of $73,120 is $324,000

Explanation:

Hi, first we need to find the units to reach an operating income = $73,120

Price=72

Var Cost= 72*0.62=44.64

Fixed cost= 50,000

With that in mind, let´s formulate the equation

$OperIncome=X(72-44.64)-50,000$

Where:

X= units to sell

everything should look like this

$73,120=X(72-44.64)-50,000$

$\frac{123,120}{(72-44.64)} =X$

$X=4,500$

So, Head First has to sell 4,500 units in order to make that $73,120 operating income mark. Therefore, the sales revenue will be 4,500*$72=$324,000

To check the aswer, please relate to the MS excel spreadsheet attached to this answer.

Best of luck.