Ken's Bicycle Shop P12-35 (Hilton) Breakeven
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Ken's Bicycle Shop sells mountain bikes. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows:
Product Category Sales Price Invoice Cost Sales Commissions
High quality $700 $375 20% of sales
Medium quality 500 235 20% of sales
The shop anticipates selling 500 bicycles, 300 of which will be medium quality. Annual fixed costs are $80,000. Ignore taxes.
Required
a. What is the shop's sales mix?
b. What is the shop's break-even sales volume in dollars? (Hint: Find the break-even sales volume first.)
c. How many bicycles of each type must the firm sell to earn a target net income of $50,000?
d. Build your own spreadsheet. Prepare a computer spreadsheet to complete requirements (a)-(c) of this exercise. What if the market for high quality bikes drops 20 percent and Ken maintains market share?
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Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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