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 | $500 | $275 | $25 |
Medium-quality | 300 | 135 | 15 |
Three-quarters of the shop’s sales are medium-quality bikes. The shop’s annual fixed expenses are $ 65,000. (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 $48,750? Assume a constant sales mix.
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