Without referencing the book or the videos, review the following sales and cost

Question

Without referencing the book or the videos, review the following sales and cost data for LBCC Bike shop. Can you determine how many bikes you must sell each month in order to break even (net income of $0)? Make sure you defend your approach.

No one runs a business with the goal of only breaking even. How many bikes would you need to sell each month to earn $1,200 net income?

Lastly, you are considering a $2,000 advertising campaign that is expected to result in a one-time increase in sales of 15 bikes. Should you do it?

Hint: consider fixed versus variable costs.

Sales Price $    200 Costs Frame $      30 Seat $      10 Tires (each) $        5 Rent (monthly) $    900 Manager salary (monthly) $ 2,000 Assembly (per bike) $      25 Depreciation (monthly) $    100

Explanation / Answer

Sales price per bike = $200

Variable cost per bike =$75

Contribution per bike =$125

Fixed cost per month =$3000

Breakeven units = 3000/125= 24 bikes per month

Case 2- Profit required =$1200

Number of units required = 4200/125= 33.6

Since number of bikes cannot be in decimal, bikes to be sold = 34

Case 3- Increase in cost =$2000

Contribution from additional 15 units = 1875

Loss =$125

Since, contribution from additional units is lower than additional costs, advertisement campaign should not be done.

Looking forward to your upvote.

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