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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Break-Even Point in Units

Head-First Company plans 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).

Required:

  1. 1. Calculate the break-even number of helmets.
  2. 2. Check your answer by preparing a contribution margin income statement based on the break-even units.

1.

To determine

Compute the break-even number of helmets.

Explanation

Break-Even Point:

Break-even point refers to the point where total cost is equal to total revenue. The profit is equal to zero at the breakeven point. Break-even point is calculated in units or sales.

Use the following formula to compute the break-even number:

Break-Even Number=Total fixed costPriceunit variable cost

Substitute $49,500 for total fixed cost, $75 for price and $45 for unit variable cost

2.

To determine

Prepare the contribution margin income statement of Company H for 1,650 helmets.

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