Babbott Bicycle Company (BBC) is a high-end manufacturer of bicycle parts. Its p
ID: 2448550 • Letter: B
Question
Babbott Bicycle Company (BBC) is a high-end manufacturer of bicycle parts. Its products are sold to specialty bike manufacturers throughout the United States and Canada. One product, in particular, is the rear brake assembly that is used in high-end racing bikes. The rear brake assembly sells for $40 per unit. This year’s expected production is 10,000 units, but demand in the specialty bicycle market has fluctuated in recent years so that BBC is also predicting that the actual production/sales figure could be anywhere between 7,000 and 15,000 units. BBC’s accountant reports the following costs for making the 10,000 rear brake assemblies: Per Unit Costs Cost for 10,000 Units Direct materials $10.00 $100,000 Direct manufacturing labor 6.00 60,000 Variable manuf. overhead 3.00 30,000 Machine lease 3.40 34,000 Allocated fixed manuf. costs 6.00 60,000 Total costs $284,000 In addition, the company has inspection, setup, and materials-handling costs that vary directly with the number of batches in which the bikes are produced. BBC produces brakes in batches of 1,000 units and the total batch-related costs are $20,000. Required a. Compute the breakeven point
Explanation / Answer
Solution:
(A). Caluculationof Break-Even Point:
Break-Even Point =
(B). Fixed Costs:
Fixed Cost Per Unit = $ 6
Fixed Cost = $ 60,000
Variable Cost Caluculation:
Direct Material (10,000 * 10) 1,00,000
Direct Labour (10,000 * 6) 60,000
Variable Mfg Exp(10,000 * 3) 30,000
Machine Lease (10,000 * 3.4) 34,000
Total Variable O.H = 2,24,000
Total Variable Cost Per Unit = 22.4
(C). Contribution Margin:
Contribution Per Unit = $ 40 - $ 22.4
= $ 17.6
(D). B.E.P :
Break-Even Point = $ 60,000 / 17.6
= 3,409.09
Break-Even Point = Fixed Cost / Selling Price Per Unit-Vriable Cost Per Unit
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