Trail Bikes, Inc

question 60

Essay

Trail Bikes, Inc. sells three Deluxe bikes for every seven Standard bikes. The Deluxe bike sells for $1,800 and has variable costs of $1,200. The Standard bike sells for $600 and has variable costs of $200.
Required:
A. If Trail Bikes has fixed costs that total $1,702,000, how many bikes must be sold in order for the company to break even?
B. How many of these bikes will be Deluxe bikes and how many will be the Standard bikes?
Answer
Weighted average contribution margin
= (3 x ($1,800 - $1,200) + 7 x ($600 - $200)) / 10 = $460
Break even point = $1,702,000/460 = 3,700 bikes
30% Deluxe = 1,110
70% Standard = 2,590

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Definitions:

Exhaustible Resource

A natural resource that can be depleted and is not replenished over a short geological time frame.

Discount Rate

The discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows, reflecting the time value of money and risk.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period, used in capital budgeting to assess the profitability of an investment.

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