Stevie's Scooters plans to sell a standard scooter for $850 and a chrome scooter for $1350. Stevie's purchases the standard scooter for $450 and the chrome scooter for $600. Stevie's expects to sell one standard scooter for every three chrome scooters. Stevie's monthly fixed costs are $715,500. Requirement 1. How many of each type of scooter must Stevie's Scooters sell each month to break even? Start by selecting the formula and entering the amounts to compute the breakeven point in units for the "package" of products—total scooters to be sold. (Enter a "0" for any zero balances. Enter currency amounts to the nearest cent. Abbreviation used: Weighted-avg. CM = weighted-average contribution margin.) ? ? ? ? ( Fixed costs + Target profit ) ÷ Weighted-avg. CM per unit = Required sales in units ( + ) ÷ = Requirements Dialog content starts 1. How many of each type of scooter must Stevie'sScooters sell each month to break even? 2. How many of each type of scooter must Stevie'sScooters sell each month to earn $1,192,500? 3. Suppose Stevie's expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two are standard scooters and two are chrome scooters. Will the breakeven point of total scooters increase or decrease? Why? (Calculation not required.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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How many of each type of scooter must Stevie'sScooters sell each month to break even? |
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How many of each type of scooter must Stevie'sScooters sell each month to earn $1,192,500? |
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Suppose Stevie's expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two are standard scooters and two are chrome scooters. Will the breakeven point of total scooters increase or decrease? Why? (Calculation not required.) |
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