Question

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:

Product TypeSales PriceInvoice CostSales CommissionHigh-quality$500 $275 $25 Medium-quality 300 135 15 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.) Required:
1. Compute the unit contribution margin for each product type.
2. What is the shop's sales mix?
3. Compute the weighted-average unit contribution margin, assuming a constant sales mix.
4. What is the shop's break-even sales volume in dollars? Assume a constant sales mix.
5. How many bicycles of each type must be sold to earn a target net income of $48,750? Assume a constant sales mix.

Answer 1

To conduct a cost-volume-profit analysis for Tim's Bicycle Shop, key calculations including the unit contribution margin, sales mix, weighted-average unit contribution margin, break-even sales volume, and the number of bicycles to sell for a target net income need to be performed using provided sales data, costs, and commissions.

Step-by-step explanation:

To perform a cost-volume-profit analysis for Tim's Bicycle Shop which sells high-quality and medium-quality bicycles, we need to perform several calculations:

1. Unit Contribution Margin: This is calculated by subtracting the unit cost and the sales commission from the sales price for each product.
2. Sales Mix: This refers to the ratio of high-quality bikes sold to medium-quality bikes.
3. Weighted-Average Unit Contribution Margin: This is found by multiplying the unit contribution margin by the sales mix for each product type and then summing the results.
4. Break-Even Sales Volume in Dollars: This can be calculated by dividing the total fixed expenses by the weighted-average unit contribution margin.
5. Target Net Income Calculation: To find out how many bikes need to be sold to achieve a specific target income, we use the contribution margin approach.

Note that the calculations will require all the data provided in the question as well as some additional calculations and considerations.