Brad’s Bicycle shop_CVP Analysis

Exercise 7-30

Brad’s Bicycle shop sells 21-speed bicycles. For the 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                 $1,250             $540                $80

Medium Quality          620                 320                  70

Sixty percent of the shop’s sales are medium quality bikes. The shop’s annual fixed expenses are $226,000.

Required:

1.      Compute the unit contribution margin for each product type.

2.      What is shop’s sales mix?

3.      Compute the weighted average unit contribution margin, assuming a constant sales mix.

4.      What is the shop’s breakeven sales volume in dollars? Assume a constant sales mix.

5.      How many bicycles of each type must be sold to earn a target income of $117,000? Assume a constant sales mix.