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	Sales Price			Invoice Cost			Sales Commission
High-quality	$	1,750		$	790		$	90
Medium-quality		870			570			30

Three-quarters of the shop’s sales are medium-quality bikes. The shop’s annual fixed expenses are $277,200. (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 $126,000? Assume a constant sales mix.

Answer 1