Mountain Bikes (MB) - Break even Graph Worksheet

 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]