Asked by Lindani Skhosana on Apr 28, 2024
Verified
Trail Bikes, Inc. sells three Deluxe bikes for every seven Standard bikes. The Deluxe bike sells for $1,800 and has variable costs of $1,200. The Standard bike sells for $600 and has variable costs of $200.
a. If Trail Bikes has fixed costs that total $1,702,000, how many bikes must be sold in order for the company to break even?
b. How many of the bikes determined in (a) will be Deluxe bikes, and how many will be the Standard bikes?
Variable Costs
Costs that fluctuate in direct proportion to changes in levels of production or sales volumes.
Fixed Costs
Financial obligations like rent, wages, and insurance that are stable and do not vary with the level of goods manufactured or sold.
Break-even
The point at which total revenues equal total costs, resulting in neither profit nor loss for the business.
- Comprehend the principle of break-even analysis and how it is applied in making business decisions.
- Assess the economic health of a business through the evaluation of break-even points, both in units of sales and in dollars.
- Implement break-even analysis in scenarios involving multiple products, determining the sales mix and calculating contribution margins.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
(The overall company product is labeled "E" in the answer.)a. Unit contribution margin of E: {[3 × ($1,800 - $1,200)] + [7 × ($600 - $200)]} ÷ 10 = $460
Break-even sales units for E: $1,702,000 ÷ $460 = 3,700 bikes
b. Deluxe: 30% × 3,700 = 1,110
Standard: 70% × 3,700 = 2,590
Break-even sales units for E: $1,702,000 ÷ $460 = 3,700 bikes
b. Deluxe: 30% × 3,700 = 1,110
Standard: 70% × 3,700 = 2,590
Learning Objectives
- Comprehend the principle of break-even analysis and how it is applied in making business decisions.
- Assess the economic health of a business through the evaluation of break-even points, both in units of sales and in dollars.
- Implement break-even analysis in scenarios involving multiple products, determining the sales mix and calculating contribution margins.