Question

Using the equation method, calculate the sales amount in dollars needed for Mike's Bikes to break even with the following information: Selling price per bike =$125. Contribution margin per bike= $76. Fixed costs= $5000 per month.

a) -$5,076 in sales
b) -$12,755 in sales
c) -$8,224 in sales
d) None of the above

Answer 1

Mike's Bikes needs to sell 66 bikes at $125 each to break even, totaling $8250 in sales. This means the correct answer is (d) None of the above.

Step-by-step explanation:

To calculate the sales amount in dollars needed for Mike's Bikes to break even, we use the formula: Break-even point in dollars = Fixed Costs ÷ (Selling Price per Unit - Variable Cost per Unit), also known as Fixed Costs ÷ Contribution Margin per Unit. Here the selling price per bike is $125 and the contribution margin per bike is $76. The fixed costs provided are $5000 per month.

Using the provided data, the break-even point calculation is as follows: $5000 ÷ $76 = 65.789 units. Since Mike cannot sell a fraction of a bike, he would need to sell 66 bikes to surpass the break-even point. To find the sales amount, we multiply the number of bikes by the selling price per bike: 66 bikes * $125/bike = $8250.

Therefore, the sales amount in dollars needed for Mike's Bikes to break even is $8250, which makes the correct answer (d) None of the above.