Mountain Bikes (MB)
Topic/s covered: Break-even analysis |
·
Meaning of margin
of safety ·
Break-even
quantity. ·
Target profit ·
Break-even graph |
Suman, a well-known cyclist, had won many
national and international medals in the cycling race. When he retired from professional
competitions, he started assembling mountain bikes and used to sell online. He
concentrated on the very small but specialized niche segment. He had sourced spare parts from different manufacturers. The following cost
and revenue details are available from his records:
· Monthly fixed cost $ 5,600.
· Variable cost per bike $ 180
· Selling price per bike $ 250
· Monthly sales
110 bikes.
Questions:
a) Explain
what is meant by the term ‘margin of safety’. |
[2
marks] |
b) Calculate the number of bikes to be sold to break even. |
[2
marks] |
c) Calculate
profit at the current sales level |
[2
marks] |
d) If Suman
wants to make a monthly profit of $ 5,000, calculate the number of bikes to be
sold to achieve this. |
[2
marks] |
e) Construct a
break-even graph using your answers to the questions (b) and (C) ----------------------------------------------------------------------------------- |
[ 5
marks] |
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