Exercise 7-30

Brad’s 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

Medium Quality 620 320 70

Sixty percent of the shop’s sales are medium quality bikes. The shop’s annual fixed expenses are $226,000.

Required:

1. Compute the unit contribution margin for each product type.

2. What is shop’s sales mix?

3. Compute the weighted average unit contribution margin, assuming a constant sales mix.

4. What is the shop’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.