A Small Custom Bicycle Helmet Manufacturer Has a Profit Goal

question 165

Essay

A small custom bicycle helmet manufacturer has a profit goal of $60,000 for a product selling for $40 per unit. The company's total fixed costs are $40,000, and its contribution margin is $25. Using break-even analysis, how many custom bike seats (units) must be sold to meet the profit goal? Please show your formula to explain how you arrived at your answer.

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Definitions:

Convertible

Refers to financial instruments or securities, like bonds or preferred stock, that can be transformed into another form, usually common stock, under certain conditions.

Dilutive Security

A financial instrument, like an option or convertible bond, that may reduce earnings per share by increasing the total number of shares outstanding.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends and without voting rights.

Bonds Payable

Bonds payable are long-term liabilities representing money a company must pay back to bondholders, typically at specified interest rates and dates.