Biscayne rent a bike rents two models of automobiles the standard and deluxe. In

Question

Biscayne rent a bike rents two models of automobiles the standard and deluxe. Information follows

Biscayne total fixed cost is $18,500 per month

Required

1. Determines the contribution margin per rental day and contribution margin ratio for each model that Biscayne offers.

2. Which model would Biscayne's perfer to rent. Explain the answer

3.Calculate Biscayne's break even point if the product mix is 50/50

4. Calculate the break even point id Biscayne product mix change so that the standard model is rented 75 percent of the time and the deluxe is rented only 25 percent.

5. Calculate the break even point of Biscayne product mix changes so that the standard model is rented 25 percent of the time and the deluxe is rented 75 percent.

Standard Deluxe Rental price per day $30.00 $38.00 Variable cost per day 10.50 15.20

Explanation / Answer

1. Determines the contribution margin per rental day and contribution margin ratio for each model that Biscayne offers

Unit Contribution for Standard = $30 - $10.50

.................................................= $19.50

Unit Contribution for Deluxe = $38 - $15.20

..............................................= $22.80

Contribution Margin Ratio for Standard = ($19.50 / $30) x 100

...............................................................= 65%

Contribution Margin Ratio for Deluxe = ($22.80 / $38) x 100

............................................................= 60%

2. Which model would Biscayne's perfer to rent. Explain the answer

We will prefer Standard Model, because it has a higher contribution margin.

3.Calculate Biscayne's break even point if the product mix is

Weighted Contribution Margin Ratio if product mix is 50/50 = (65% x 0.5) + (60% x 0.5)

..............................................................................................= 62.5%

Breakeven point if product mix is 50/50 = Fixed Cost / Weighted Contribution Margin

...............................................................= $18,500 / 0.625

...............................................................= $29,600

4. Calculate the break even point id Biscayne product mix change so that the standard model is rented 75 percent of the time and the deluxe is rented only 25 percent.

Weighted Contribution Margin Ratio if product mix is 75/25 = (65% x 0.75) + (60% x 0.25)

..............................................................................................= 63.75%

Breakeven point if product mix is 75/25 = Fixed Cost / Weighted Contribution Margin

...............................................................= $18,500 / 0.6375

...............................................................= $29,020

5. Calculate the break even point of Biscayne product mix changes so that the standard model is rented 25 percent of the time and the deluxe is rented 75 percent.

Weighted Contribution Margin Ratio if product mix is 25/75 = (65% x 0.25) + (60% x 0.75)

..............................................................................................= 61.25%

Breakeven point if product mix is 25/75 = Fixed Cost / Weighted Contribution Margin

...............................................................= $18,500 / 0.6125

...............................................................= $30,204

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