Question

If Mike's Bikes would like a 50% contribution margin ratio on each bike they sell, what price would they need to sell their bikes for if the variable costs per bike are $88?

a) -$132
b) -$176
c) We don't have enough information.
d) None of the above

Answer 1

Mike's Bikes must sell their bikes for $176 to achieve a 50% contribution margin ratio given the variable costs of $88 per bike. The correct answer is (d) None of the above.

Step-by-step explanation:

If Mike's Bikes wants a 50% contribution margin ratio on each bike they sell, and the variable costs per bike are $88, the price they need to sell their bikes for can be calculated using the concept of a contribution margin ratio. The contribution margin ratio is defined as (Sales Price - Variable Cost) / Sales Price. This means that if Mike's Bikes wants a 50% ratio, the contribution margin (Sales Price - Variable Cost) should be half of the sales price.

To find the sales price (SP), we set up the equation as follows:
0.50 = (SP - $88) / SP
This simplifies to:
0.50 * SP = SP - $88
Solving for SP gives us:
0.50 * SP + $88 = SP
$88 / (1 - 0.50) = SP
Thus, SP = $88 / 0.50
SP = $176

Therefore, the correct selling price for the bikes is $176. None of the options (a), (b), or (c) are correct, so the answer would be (d) None of the above.