Question

Mike's Bikes planned to sell 500 bikes at $100 each with variable costs per bike of $50 and fixed costs of $21,000. If they sell 600 bikes, what would the contribution margin be for each additional bike?

a) -$50
b) -$15
c) -$6.67
d) None of the above

Answer 1

The correct answer to the contribution margin for each additional bike sold beyond the planned 500 units sold by Mike's Bikes is None of the above and not negative. Each additional bike provides a positive contribution margin of $50.

Step-by-step explanation:

The contribution margin for each additional bike sold by Mike's Bikes, beyond the planned 500 bikes, can be calculated by subtracting the variable cost per bike from the selling price per bike. Given that the selling price is $100 and the variable cost is $50, the contribution margin per additional bike sold is:

$100 (selling price) - $50 (variable cost) = $50 (contribution margin)

Therefore, the correct answer is none of the above, since all the provided options are incorrect. The contribution margin for each additional bike is actually a positive $50.