Chapter 7, Problem 29E

Tim’s Bicycle Shop sells 21-speed bicycles. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows:

Three-quarters of the shop’s sales are medium-quality bikes. The shop’s annual fixed expenses are $65,000. (In the following requirements, ignore income taxes.)

Requited:

1. 1. Compute the unit contribution margin for each product type.
2. 2. What is the shop’s sales mix?
3. 3. Compute the weighted-average unit contribution margin, assuming a constant sales mix.
4. 4. What is the shop’s break-even sales volume in dollars? Assume a constant sales mix.
5. 5. How many bicycles of each type must be sold to earn a target net income of $48,750? Assume a constant sales mix.