Five partners have decided to build a bicycle manufacturing company. At the moment, they are carrying out the final procedures to start the operations of the factory, as well as several market studies, from which the following data emerge:

Estimated sales during the first fiscal year: 1,000 bicycles

Price at which each bicycle can be sold: $1,500

 
According to expert opinion, the estimated fixed costs are:

Fixed interest costs
$10,000

Fixed costs of production
$40,000

Fixed administration costs
$30,000

Fixed costs of sales
$20,000

Total fixed costs
$100,000

Gerardo Carrizales, one of the partners, after analyzing the costs of manufacturing each bicycle, concluded that the unit variable costs were as follows:

Materials
$450

Screws and rivets
$50

Tires
$100

Total variable costs per unit
$600

 
After several weeks of processing the opening of the company, which will be called Bicycles of the Center of Mexico, Juan Carlos González, also a partner, asks his colleagues for advice to determine the break-even point during the first period of operations.
Also request the following:

a) Assuming that the company manages to sell the units estimated by the market study, what will be the safety margin?

b) If the company's fixed costs increase by 10%, what would be the new break-even point in units and in pesos?

c) Regardless of the previous point, if fixed costs were reduced to $90,000 due to productivity strategies and the price increased $150, what would be the new unit contribution margin, the percentage contribution margin, the new break-even point in pesos and in units, and the safety margin in units?

Answer rating: 100% (QA)

a The breakeven point is the point at which the companys total revenue equals its total costs To determine the breakeven point in units we can use the ... View the full answer