Question

Stevie's Scooters plans to sell a standard scooter for $200 and a chrome scooter for $210. Stevie's purchases the standard scooter for $50 and the chrome for $70. Stevie's expects to sell one standard scooter for every three chrome scooters. Stevie's monthly fixed costs are $85,500.

Requirement 1: Start by selecting the formula and entering the amounts to compute the break even point in units for the "package" of products- total scooters to be sold.

Formula: ______+_____/_____= required sales

How many of each type of scooter must Stevie's sell each month to break even?

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

Formula: ______+_____/_____= required sales

Requirement 2: How many of each type of scooter must Stevie's sel to earn $119,700?

Formula: ______+_____/_____= required sales

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

Requirement 3: Suppose Stevie's expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two were standard and two were chrome. Will the break even point of total scooters increase or decrease?

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 _______.

Answer 1

1. Breakeven Sales= Fixed Cost/ Weighted Contribution Margin

	standard scooter	chrome scooter
Sales Price	$                    200.00	$                 210.00
Variable cost	$                      50.00	$                    70.00
Contribution Margin	$                    150.00	$                 140.00
Contribution Margin ratio	75%	67%
Sell 1 sell one standard scooter for every three chrome scooters	1/4	3/4
	25%	75%
Contribution Margin	$                    150.00	$                 140.00
Weighted Contribution Margin	$                      37.50	$                 105.00
	$                                                        142.50
Fixed Cost	$                                                  85,500.00
Breakeven Sales in Units	600.00

Stevie's must sell = 600 units*25%= 150 units of Standard scooters for breakeven

Stevie's Must sell= 600 units *75%=450 Units of Chrome Scooters for breakeven.

2)

	Fixed Cost	$                                                  85,500.00
	Earnings Required	$                                                119,700.00
	Total Amount Required	$                                                205,200.00
	Weighted Contribution Margin	$                                                        142.50
	Formula=Fixed Cost+Earnings Required/Weighted contribution margin	1440 units
	Standard scooters need to be sold=1440*25%	360
	Chrome scooters need to be sold=1440*75%	1080

3) Each standard scooter contributes $.150 to profits while each chrome scooter contributes$ 140 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 the break even point to Decrease.

Kindly see the below working with new ratio-

	standard scooter	chrome scooter
Sales Price	$                    200.00	$               210.00
Variable cost	$                      50.00	$                  70.00
Contribution Margin	$                    150.00	$               140.00
Contribution Margin ratio	75%	67%
Sell 1 sell one standard scooter for every three chrome scooters	2/4	2/4
	50%	50%
Contribution Margin	$                    150.00	$               140.00
Weighted Contribution Margin	$                      75.00	$                  70.00
	$                                                      145.00
Fixed Cost	85500
Breakeven	589 units