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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 Sales Dollars

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. 1. Calculate the sales revenue that Head-First must make to break even by using the break-even point in sales equation.
  2. 2. Check your answer by preparing a contribution margin income statement based on the break-even point in sales dollars.

1.

To determine

Compute the amount of sales revenue required to break-even.

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 sales revenue:

Break-Even Sales Revenue=Total fixed costContribution margin ratio

Substitute $49,500 for total fixed cost and 0

2.

To determine

Make contribution margin income statement of Company H for break-even point in sales dollar.

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