Question

Tim's Bicycle Shop sells 21-speed bicycles. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows: Product Type High-quality Modium-quality Sales Price Trivoice Cost Sales Commission $1,300 $ 700 $80 750 420 60 Three-quarters of the shop's sales are medium-quality bikes. The shop's annual fixed expenses are $159,600. (In the following requirements, ignore income taxes.) Required: 1. Compute the unit contribution margin for each product type. 2. What is the shop's sales mix? 3. Compute the weighted average unit contribution margin, assuming a constant sales mix. 4. What is the shop's break-even sales volume in dollars? Assume a constant sales mix. 5. How many bicycles of each type must be sold to earn a target net income of $99,750? Assume a constant sales mix. X Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What is the shop's break-even sales volume in dollars? Assume a constant sales mix. (Do not round Intermediate calculations.) Break-even sales volume 267,600

Answer 1

Requirement 1 Product type High Quality Medium Quality Sales Price $ 1,300.00 $ 750.00 Variable cost Contribution Margin $ 780.00 $ 520.00 $ 480.00 $ 270.00 Note: Variable Cost includes invoice cost and Sales Commission Requirement 2 High Quality Medium Quality 25% 75% Note : Since it is Mentioned in Question that Three quarters of shop sales are medium quality bikes. So 75% are medium and remaining 25% are high quality Requirement 3 Weighted Average Contribution Margin = 25%*$520 +75%*270 $ 332.50 Requirement 4 Break even sales volume = Annual Fixed Expense / Weighted Avg Contribution Margin $159600 / $332.50 480 Bicycles Bicycle type High Quality Medium Quality Break even volume Sales Price 120 $ 1,300.00 360 $ 750.00 Sales Revenue 1,56,000.00 2,70,000.00 Break Even sales in Dollars 4,26,000.00 Requirement 5 Sales volume required to earn target profit = (Fixed cost + Target profit) / Weighted avg contribution margin per unit (159600+99750)/332.50 780 Bicycles Bicycle type Number of Bicycles High Quality 780*25% 195 Bicycles Medium Quality 780*75% 585 Bicycles