Question

Scooters plans to sell a standard scooter for $ 120 and a chrome scooter for $ 160. Steve's purchases the standard scooter for $ 30 and the chrome scooter for $ 40. Steve's expects to sell one standard scooter for every three chrome scooters. Steve's monthly fixed costs are $ 85,500.

1. How many of each type of scooter must Steve's Scooters sell each month to break​ even?

(Fixed costs + Target profit)/ Weighted-avg. CM per unit = Required sales in units

Standard Scooter formula: ______+_____/_____= required sales in units

Chrome Scooter formula: ______+_____/_____= required sales in units

Stevie's must sell ____ standard scooters and _____ Chrome scooters to break even.

2. How many of each type of scooter must Steve's Scooters sell each month to earn $ 67,500?

Standard Scooter formula: ______+_____/_____= required sales in units

Chrome Scooter formula: ______+_____/_____= required sales in units

Stevie's must sell ____ standard scooters and _____ Chrome scooters.

3. Suppose Steve's expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two are standard scooters and two are chrome scooters. Will the breakeven point of total scooters increase or​ decrease? Why?​ (Calculation not​ required.)

Each standard scooter contributes $____ to profits while each chrome scooter contributes$_____ to profit.Therefore, the increase in sales of standard scooters and decrease in chrome scooters woud cause the weighted average contribution margin to _______ and the break even point to _______.

I am stuck at how to find the weighted-avg. CM per unit.

Answer 1

Please find below the solution...

1. Breakeven Sales= Fixed Cost/ Weighted Contribution Margin
	standard scooter	chrome scooter	Total
Sales Price	$120.00	$160.00
Variable cost	$30.00	$40.00
Contribution Margin	$90.00	$120.00
Contribution Margin ratio	75%	75%
Sell 1 sell one standard scooter for everythree chrome scooters	=1/4	=3/4
	25%	75%
Contribution Margin	$90.00	$120.00
Weighted Contribution Margin	$22.50	$90.00	$112.50
Fixed Cost	$85,500.00
Breakeven Sales in Units	760		=85500/112.5
Stevie\s must sell = 760 units*25%= 190 unitsof Standard scooters for breakeven
Stevie\s Must sell= 760 units *75%= 570 Units ofChrome Scooters for breakeven.
2)
Fixed Cost		$85,500.00
Earnings Required		$67,500.00
Total Amount Required		$153,000.00
Weighted Contribution Margin		$112.50
Formula=Fixed Cost+Earnings Required/Weighted contributionmargin		1360
Standard scooters need to be sold=1360*25%		340
Chrome scooters need to be sold=13600*75%		1020
3) Each standard scooter contributes $90 to profits while eachchrome scooter contributes $120 to profit.Therefore, the increase in sales of standard scooters and decrease in chrome scooters woud cause the weighted average contribution margin to Increase and thebreak even point to Decrease.
Kindly see the below working with new ratio-
	standard scooter	chrome scooter
Sales Price	$120.00	$160.00
Variable cost	$30.00	$40.00
Contribution Margin	$90.00	$120.00
Contribution Margin ratio	75%	75%
Sell 1 sell one standard scooter for everythree chrome scooters	=2/4	=2/4
	50%	50%
Contribution Margin	$90.00	$120.00
Weighted Contribution Margin	$45.00	$60.00	$105.00
Fixed Cost	85500
Breakeven	814