Barclay Bikes manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500.The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models.If the firm's annual fixed costs total $6,500,000,calculate the firm's break-even point in composite units (rounded to the nearest whole unit).
A)7,575 composite units.
B)15,150 composite units.
C)858 composite units.
D)6,161 composite units.
E)429 composite units.

Question

Quizplus · Accepted Answer

To calculate the break-even point in composite units, first, find the weighted average contribution margin per unit. The sales mix ratio is 5 Youth : 9 Adult : 6 Recreational. The contribution margins are $105 (Youth), $450 (Adult), and $500 (Recreational). Weighted average contribution margin = [(5*$105) + (9*$450) + (6*$500)] / (5+9+6) = ($525 + $4050 + $3000) / 20 = $7575 / 20 = $378.75 per composite unit. Break-even point in composite units = Total fixed costs / Weighted average contribution margin per unit = $6,500,000 / $378.75 ≈ 858 composite units.

Barclay Bikes Manufactures and Sells Three Distinct Styles of Bicycles