Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Product costs include: Direct materials per helmet $ 30 Direct labor per helmet 8 Variable factory overhead per helmet 4 Total fixed factory overhead 20,000 Variable selling expense is a commission of $3 per helmet; fixed selling and administrative expense totals $29,500. Required: 1. Calculate the total variable cost per unit. 2. Calculate the total fixed expense for the year. 3. Prepare a contribution margin income statement for Head-First Company for the coming year.

Instructions are listed below.

Explanation:

Giving the following information:

Sales= 5,000 units

Selling price= $75

Product costs include:

Direct materials per helmet= $30

Direct labor per helmet= $8

Variable factory overhead per helmet= $4

Total fixed factory overhead 20,000

Variable selling expense is a commission of $3 per helmet

The fixed selling and administrative expense totals $29,500

The total variable cost is calculated as follow:

Total variable cost= unitary variable cost*number of units

Unitary variable cost= direct material + direct labor + variable overhead + variable selling and administrative

Total variable cost= (30 + 8 + 4 + 3)*5,000= $225,000

Total fixed costs= 20,000 + 29,500= $49,500

Income statement:

Sales= 5,000*75= 375,000

Total variable cost= (225,000)

Contribution margin= 150,000

Total fixed factory overhead= (20,000)

The fixed selling and administrative expense= (29,500)

Net operating income= $100,500

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