Question

Stan's Scooters plans to sell a standard scooter for $800 and a chrome scooter for $1250. Stan's purchases the standard scooter for $600 and the chrome scooter for $550. Stan's expects to sell one standard scooter for every three chrome scooters. San's monthly fixed costs are $598,000. Read the requirements Requirement 1. How many of each type of scooter must Stan's Scooters sel each month to break even? Start by selecting the formula and entering the amounts to compute the breakeven point in units for the "package" of products-total scooters to be sold. (Enter a "0 for any zero balances. Enter currency amounts to the nearest cent. Abbreviation used: Weighted-avg. CMs weighted-average contribution margin.) Target profit Fixed costs Weighted-avg. CM per unit + Required sales in units 0 598000 How many of each type of scooter must Stan's Scooters sel each month to break even? Stan's must sell standard scooters and chrome scooters to break even Requirement 2. How many of each type of scooter must Stan's Scooters sell each month to eam $1,035.000? Start by selecting the formula and entering the amounts to compute the targeted sales dollars required to earn for $1,035,000 for the "package" of products-total scooters to be sold. (Enter currency amounts to the nearest cent. Abbreviation used: Weighted-avg CM weighted-average contribution margin.) Target profit Fixed costs Weighted-avg. CM per unit + Required sales in units 1035000 596000 To reach the target operating income. Stan's must sell standard scooters and chrome scooters

Answer 1

Contribution Margin = Sales – Variable cost

	Standard	Chrome
Selling price	800	1250
Variable cost	600	550
Contribution Margin	200	700

Weighted average contribution margin per unit = 200*1/4 + 700*3/4

= 575

1.Break Even point in units = Fixed costs/Weighted average contribution margin

= 598000/575

= 1,040 scooters

Standard Scooters = 1,040*1/4 = 260

Chrome Scooters = 1,040*3/4 = 780

Hence, 260 standard scooters and 780 chrome scooters must be sold each month to break even

2.Desired Income = $1,035,000

Fixed costs = $598000

Desired Contribution Margin = $1,633,000

Number of units = 1,633,000/575

= 2,840 scooters

Standard Scooters = 2,840*1/4 = 710 scooters

Chrome = 2,840*3/4 = 2,130 scooters

3.The break even point will increase since the contribution margin per unit of standard scooter is lower, the change in ratio will lead to a reduction in weighted average contribution margin per unit and hence, the break even point will increase