Head - First Company plans to sell 5,000 bicycle helmets at $70 each in the coming year. Unit variable cost is $49 (includes direct materials, direct labour, variable overhead, and variable selling expense). Total fixed cost equals $29,400 (includes fixed factory overhead and fixed selling and administrative expense). Requirements: 1. Calculate the number of helmets Head - First must sell to earn operating income of $81, 900 before income taxes (ie, ignore income taxes). 2. Calculate the sales revenue that Head - First must make to earn operating income of $81,900 before income taxes (ie, ignore income taxes). 3. (a) Calculate the margin of safety in terms of the number of units at 5,000 units sold. (b) Calculate the margin of safety in terms of sales revenue at 5,000 units sold. 4. For Head - First Company, operating income at 5,000 units sold is $ 75,600. Calculate the degree of operating leverage at this level of sales. (Round your answer to the nearest tenth.

Head - First Company plans to sell 5,000 bicycle helmets at $70 each in the coming year. Unit variable cost is $49 (includes direct materials, direct labour, variable overhead, and variable selling expense). Total fixed cost equals $29,400 (includes fixed factory overhead and fixed selling and administrative expense). Requirements: 1. Calculate the number of helmets Head - First must sell to earn operating income of $81, 900 before income taxes (ie, ignore income taxes). 2. Calculate the sales revenue that Head - First must make to earn operating income of $81,900 before income taxes (ie, ignore income taxes). 3. (a) Calculate the margin of safety in terms of the number of units at 5,000 units sold. (b) Calculate the margin of safety in terms of sales revenue at 5,000 units sold. 4. For Head - First Company, operating income at 5,000 units sold is $ 75,600. Calculate the degree of operating leverage at this level of sales. (Round your answer to the nearest tenth.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 29BEB: Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in...

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Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of 81,900 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.