ACCT 526 Final Exam| Questions and Answers Latest Updated
(Graded A+)-ULL
Units to Earn Target Income: Head-First Company plans to sell 4,400 bicycle helmets at $70 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 $50,300 (includes fixed factory overhead and fixed selling and administrative expense).
1. Calculate the number of helmets Head-First must sell to earn operating income of $61,200. Break-even units = (Total
fixed cost + Target income) ÷ Unit contribution margin = ($50,300 +
$61,200) ÷ ($70 − $45) = 4,460 helmets
Sales Needed to Earn Target Income: Head-First Company plans to sell 5,800 bicycle helmets at $76 each in the
coming year. Variable cost is 59% of the sales price; contribution margin is 41% of the sales price. Total fixed cost
equals $49,600 (includes fixed factory overhead and fixed selling and administrative expense). 1. Calculate the sales
revenue that Head-First must make to earn operating income of $78,156 by using the point in sales equation. The
sales for target income is (Total fixed cost + Target income) ÷ Contribution margin ratio = ($49,600 + $78,156) ÷ 0.41
= $311,600.
Break-Even Point in Units for a Multiple-Product Firm: Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at
$74 and have variable costs of $48 each. The motorcycle helmets are priced at $215 and have variable costs of $130 each. Total fixed cost for Head-First as a whole equals $60,000
(includes all fixed factory overhead and fixed selling and administrative expense). Next year, Head-First expects to sell 4,850 bicycle helmets and 1,940 motorcycle helmets. Suppose
that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at $74 and have variable costs of $48 each. The motorcycle
helmets are priced at $215 and have variable costs of $130 each. Total fixed cost for Head-First as a whole equals $60,000 (includes all fixed factory overhead and fixed selling and
administrative expense). Next year, Head-First expects to sell 4,850 bicycle helmets and 1,940 motorcycle helmets. 1. Form a package of bicycle and motorcycle helmets based on
the sales mix expected for the coming year. 2. Calculate the break-even point in units for bicycle helmets and for motorcycle helmets. •
Break-even packages = Total fixed cost ÷ Package contribution margin = $60,000 ÷ $300 = 200 packages
• Break-even bicycle helmets = Number of packages x Sales mix amount = 200 x 5 = 1,000
• Break-even motorcycle helmets = Number of packages x Sales mix amount = 200 x 2 = 400
Variable Cost Ratio, Contribution Margin Ratio: Head-First Company plans to sell 4,400 bicycle helmets at $72 each in
the coming year. Unit variable cost is $43.20 (includes direct materials, direct labor, variable factory overhead, and
variable selling expense). Fixed factory overhead is $19,000 and fixed selling and administrative expense is $29,700. 1.
Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 1.The variable cost ratio equals Variable cost
per unit ÷ Price, or $43.20 ÷ $72 = 0.60 or 60% 2.The contribution margin ratio equals (Price − Variable cost per unit) ÷
Price = (Contribution margin per unit) ÷ Price = ($72 − $43.20) ÷ $72 = 0.40 or 40%
Break-Even Point in Units: Head-First Company plans to sell 4,400 bicycle helmets at $72 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 $41,310 (includes fixed factory overhead and fixed selling and administrative expense). 1.
Calculate the break-even number of helmets. Break-even units = Total fixed cost ÷ Unit contribution margin or $41,310
÷ ($72 − $45) = 1,530 helmets
Degree of Operating Leverage: 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).
, Operating income at 5,000 units sold is $100,500. Calculate the degree of operating leverage. (Round your answer to the
nearest tenth.) Degree of Operating Leverage = Total
Contribution Margin / Operating Income = $150,000 / $100,500= 1.5
Variable Cost, Fixed Cost, Contribution Margin Income Statement: Head-First Company plans to sell 4,200 bicycle
helmets at $67 each in the coming year. Product costs include: Direct materials per helmet $ 29 Direct labor per
helmet 8.00 Variable factory overhead per helmet 5.00 Total fixed factory overhead 19,000 Variable selling expense is
a commission of $4.00 per helmet; fixed selling and administrative expense totals $29,900. 1. Calculate the total
variable cost per unit. Round your answer to two decimal places. 2. Calculate the total fixed expense for the year. 1.
Variable cost per unit = Direct materials + Direct labor + Variable factory
overhead + Variable selling expense = $29 + $8.00
+ $5.00 + $4.00 = $46.00. 2.Total fixed expense = $19,000 + $29,900 = $48,900
Impact of Increased Sales on Operating Income Using the Degree of Operating Leverage: Head-First Company had
planned to sell 5,000 bicycle helmets at $76 each in the coming year. Unit variable cost is $44 (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). Operating income at 5,000 units sold is
$110,500. The degree of operating leverage is 1.4. Now Head-First expects to increase sales by 10% next year. 1.
Calculate the percent change in operating income expected. 2. Calculate the operating income expected next year
using the percent change in operating income calculated in Requirement 1. 1. Percent Change in Operating Income =
DOL × Percent Change in Sales= 1.4 × 10% = 14% 2.Expected Operating Income= Original Income + (Percent Change ×
Original Income)= $110,500 + (0.14 × $110,500)= $125,970
Break-Even Point in Sales Dollars: Head-First Company plans to sell 4,400 bicycle helmets at $84 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
$49,800 (includes fixed factory overhead and fixed selling and administrative expense). 1. Calculate the sales revenue
that Head-First must make to break even by using the break-even point in sales equation. Break-even sales in dollars
= Total fixed cost ÷ Contribution margin ratio = $49,800 ÷ 0.40 =
$124,500
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 $557,000 and incur total variable cost
of $382,000. Total fixed cost is expected to be $59,900. 1. Calculate the break-even point in sales dollars for Head-First.
Round the contribution margin ratio to four decimal places and sales to the nearest dollar. To compute the break-even
sales in dollars, first compute the contribution margin ratio. Contribution margin ratio = (Sales − Total variable cost) ÷
Sales = ($557,000 − $382,000) ÷ $557,000 = 0.3142 Then, the break-even sales in dollars is computed. Break-even sales
in dollars = Total fixed cost ÷ Contribution margin ratio = ($59,900 ÷ 0.3142) = $190,643 (rounded)
Margin of Safety: Head-First Company plans to sell 4,860 bicycle helmets at $70 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). Break-even units
equal 1,980. 1.Margin of Safety in Units= Budgeted Units – Break-Even Units = 4,860 – 1,980= 2,880 2.Margin of Safety
in Sales Revenue= Budgeted Sales – Break-Even Sales=
$340,200 – $138,600= $201,600
(Graded A+)-ULL
Units to Earn Target Income: Head-First Company plans to sell 4,400 bicycle helmets at $70 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 $50,300 (includes fixed factory overhead and fixed selling and administrative expense).
1. Calculate the number of helmets Head-First must sell to earn operating income of $61,200. Break-even units = (Total
fixed cost + Target income) ÷ Unit contribution margin = ($50,300 +
$61,200) ÷ ($70 − $45) = 4,460 helmets
Sales Needed to Earn Target Income: Head-First Company plans to sell 5,800 bicycle helmets at $76 each in the
coming year. Variable cost is 59% of the sales price; contribution margin is 41% of the sales price. Total fixed cost
equals $49,600 (includes fixed factory overhead and fixed selling and administrative expense). 1. Calculate the sales
revenue that Head-First must make to earn operating income of $78,156 by using the point in sales equation. The
sales for target income is (Total fixed cost + Target income) ÷ Contribution margin ratio = ($49,600 + $78,156) ÷ 0.41
= $311,600.
Break-Even Point in Units for a Multiple-Product Firm: Suppose that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at
$74 and have variable costs of $48 each. The motorcycle helmets are priced at $215 and have variable costs of $130 each. Total fixed cost for Head-First as a whole equals $60,000
(includes all fixed factory overhead and fixed selling and administrative expense). Next year, Head-First expects to sell 4,850 bicycle helmets and 1,940 motorcycle helmets. Suppose
that Head-First Company now sells both bicycle helmets and motorcycle helmets. The bicycle helmets are priced at $74 and have variable costs of $48 each. The motorcycle
helmets are priced at $215 and have variable costs of $130 each. Total fixed cost for Head-First as a whole equals $60,000 (includes all fixed factory overhead and fixed selling and
administrative expense). Next year, Head-First expects to sell 4,850 bicycle helmets and 1,940 motorcycle helmets. 1. Form a package of bicycle and motorcycle helmets based on
the sales mix expected for the coming year. 2. Calculate the break-even point in units for bicycle helmets and for motorcycle helmets. •
Break-even packages = Total fixed cost ÷ Package contribution margin = $60,000 ÷ $300 = 200 packages
• Break-even bicycle helmets = Number of packages x Sales mix amount = 200 x 5 = 1,000
• Break-even motorcycle helmets = Number of packages x Sales mix amount = 200 x 2 = 400
Variable Cost Ratio, Contribution Margin Ratio: Head-First Company plans to sell 4,400 bicycle helmets at $72 each in
the coming year. Unit variable cost is $43.20 (includes direct materials, direct labor, variable factory overhead, and
variable selling expense). Fixed factory overhead is $19,000 and fixed selling and administrative expense is $29,700. 1.
Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 1.The variable cost ratio equals Variable cost
per unit ÷ Price, or $43.20 ÷ $72 = 0.60 or 60% 2.The contribution margin ratio equals (Price − Variable cost per unit) ÷
Price = (Contribution margin per unit) ÷ Price = ($72 − $43.20) ÷ $72 = 0.40 or 40%
Break-Even Point in Units: Head-First Company plans to sell 4,400 bicycle helmets at $72 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 $41,310 (includes fixed factory overhead and fixed selling and administrative expense). 1.
Calculate the break-even number of helmets. Break-even units = Total fixed cost ÷ Unit contribution margin or $41,310
÷ ($72 − $45) = 1,530 helmets
Degree of Operating Leverage: 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).
, Operating income at 5,000 units sold is $100,500. Calculate the degree of operating leverage. (Round your answer to the
nearest tenth.) Degree of Operating Leverage = Total
Contribution Margin / Operating Income = $150,000 / $100,500= 1.5
Variable Cost, Fixed Cost, Contribution Margin Income Statement: Head-First Company plans to sell 4,200 bicycle
helmets at $67 each in the coming year. Product costs include: Direct materials per helmet $ 29 Direct labor per
helmet 8.00 Variable factory overhead per helmet 5.00 Total fixed factory overhead 19,000 Variable selling expense is
a commission of $4.00 per helmet; fixed selling and administrative expense totals $29,900. 1. Calculate the total
variable cost per unit. Round your answer to two decimal places. 2. Calculate the total fixed expense for the year. 1.
Variable cost per unit = Direct materials + Direct labor + Variable factory
overhead + Variable selling expense = $29 + $8.00
+ $5.00 + $4.00 = $46.00. 2.Total fixed expense = $19,000 + $29,900 = $48,900
Impact of Increased Sales on Operating Income Using the Degree of Operating Leverage: Head-First Company had
planned to sell 5,000 bicycle helmets at $76 each in the coming year. Unit variable cost is $44 (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). Operating income at 5,000 units sold is
$110,500. The degree of operating leverage is 1.4. Now Head-First expects to increase sales by 10% next year. 1.
Calculate the percent change in operating income expected. 2. Calculate the operating income expected next year
using the percent change in operating income calculated in Requirement 1. 1. Percent Change in Operating Income =
DOL × Percent Change in Sales= 1.4 × 10% = 14% 2.Expected Operating Income= Original Income + (Percent Change ×
Original Income)= $110,500 + (0.14 × $110,500)= $125,970
Break-Even Point in Sales Dollars: Head-First Company plans to sell 4,400 bicycle helmets at $84 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
$49,800 (includes fixed factory overhead and fixed selling and administrative expense). 1. Calculate the sales revenue
that Head-First must make to break even by using the break-even point in sales equation. Break-even sales in dollars
= Total fixed cost ÷ Contribution margin ratio = $49,800 ÷ 0.40 =
$124,500
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 $557,000 and incur total variable cost
of $382,000. Total fixed cost is expected to be $59,900. 1. Calculate the break-even point in sales dollars for Head-First.
Round the contribution margin ratio to four decimal places and sales to the nearest dollar. To compute the break-even
sales in dollars, first compute the contribution margin ratio. Contribution margin ratio = (Sales − Total variable cost) ÷
Sales = ($557,000 − $382,000) ÷ $557,000 = 0.3142 Then, the break-even sales in dollars is computed. Break-even sales
in dollars = Total fixed cost ÷ Contribution margin ratio = ($59,900 ÷ 0.3142) = $190,643 (rounded)
Margin of Safety: Head-First Company plans to sell 4,860 bicycle helmets at $70 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). Break-even units
equal 1,980. 1.Margin of Safety in Units= Budgeted Units – Break-Even Units = 4,860 – 1,980= 2,880 2.Margin of Safety
in Sales Revenue= Budgeted Sales – Break-Even Sales=
$340,200 – $138,600= $201,600
