The Body Shop Equipment Company (BSEC) sells a small, relatively lightweight, multipurpose exercise machine. This machine sells for \(\$ 700\). A recent cost analysis shows that the BSEC's cost structure for the coming year is as follows:

Required:
a Draw a graph that clearly shows (i) total fixed cost, (ii) total cost, (iii) total sales revenue and (iv) total contribution margin as the sales volume of exercise machines increases. Locate the break-even point on the graph.
b Calculate the break-even point in number of machines.
c How many machines must the BSEC sell to earn \(\$ 30000\) of profit per year?
d How much profit would be earned at a sales volume of \(\$ 420000\) ?
e Sean McLean, the owner of the BSEC, is considering travelling a circuit of gyms and fitness centres around Australia each year to demonstrate the exercise machine, distribute information and obtain sales contracts. He estimates that this will cost about \(\$ 6000\) per year. How many additional exercise machines must the business sell per year to cover the cost of this effort?

Transcribed Image Text:

Variable cost per unit Total annual fixed costs $ 325 125 000