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

1.

To determine

Compute break-even point in sales dollars.

Explanation

Break-Even Point:

The point or situation where the amount of total cost is equivalent to total revenue is known as the break-even point. It is the point where there is no loss or no profit.

Use the following formula to calculate the break-even point in sales dollars:

Break-even point in sales dollars=Fixed costsContribution margin ratio1

Substitute $58,900 for fixed costs and 31.93% for contribution margin ratio in the above formula.

Break-even point in sales dollars=$58,90031.93%=$184,466

Therefore, the break-even point in sales dollars is $184,466

2.

To determine

Make contribution margin income statement.

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