Bicycle shop sells 21-speed bicycles. For the purposes of a cost-volume profit
analysis, the shop owner has divided sales into two categories, as follows:
Product type Sales Price Invoice
cost Sales Commission
High quality $1,250 $540 $80
Quality 620 320 70
percent of the shopâ€™s sales are medium quality bikes. The shopâ€™s annual fixed
expenses are $226,000.
1. Compute the unit contribution margin
for each product type.
2. What is shopâ€™s sales mix?
3. Compute the weighted average unit
contribution margin, assuming a constant sales mix.
4. What is the shopâ€™s breakeven sales
volume in dollars? Assume a constant sales mix.
5. How many bicycles of each type must
be sold to earn a target income of $117,000? Assume a constant sales mix.