Assume that Bikes friends Company manufactures entry-level bicycles. The company currently sells its product to wholesale distributors in Munich, Bavaria, and Stuttgart. Because of the popularity of bicycles, the company is considering distributing to northern wholesalers as well.

Although wholesale prices vary depending on the quantity of bicycles purchased by a distributor, revenue consistently averages $90 per bicycle sold.

They sell 900 bikes a month.

Pittsburg Company monthly operating statistics are shown as follows:

Dollars	Percentage of sales price
Average selling price per bike	90,00	100%
Variable expenses per bike
- direct labor	2,25	2.5%
- direct materials	28,25	31,4%
- variable manufacturing overhead	3,10	3,4%
- variable administrative expenses	2,40	2,7%
Fixed costs per month	37.800

1. Assume they sell 900 bikes, what is the operating income?
2. What is the Break Even in sold Bikes and in Dollars?

Assume that Bikesfriends Company is currently selling approximately 900 bikes each month.

In response to the new market strategy, the company`s director of advertising is asking for an increase of $1.500 in her monthly budget. She plans to use these funds to advertise in several special bike trade publications.

From her experience, she is confident that the advertisements will result in higher monthly orders

She wishes to emphasize the impact of her request on the company`s operating income. The impact that she sees is an overall monthly operating income of $ 36.300

3. How many bikes must be additionally sold?

Bikesfriends Company plant manager does not completely agree with the adver-tising director`s projections. He believes that the increased demand for the company`s product will initially put pressure on the plant`s production capabilities.

To deal with the pressure, he asserts that many factory workers will be required to work excessive overtime hours, causing an increase in direct labor costs of approximately $1.80 per unit.

4. Assuming that he is correct, what is the sales volume in units required to achieve the advertising director`s projected monthly income figure of $36.300?

The vice president of sales isn`t convinced that an increase in the monthly advertising budget of $1.500 will yield additionally sales units per month as projected. Her estimate is more conservative, at 350 units per month (for total monthly sales of 1,250 units).

5. Assume that the monthly advertising budget is increased by $1.500 and that direct labor costs actually do increase by $1 .80 per unit because of the overtime premium required to meet increased production demands. If the vice president of sales is correct regarding her 1,250 unit projection, she wants to know the extent to which the company would have to raise its selling prices (above the current price of $90 per unit) to achieve a target monthly income figure of $36.300.

Answer rating: 100% (QA)

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