Chapter 05s-1

# Lets assume racing bicycle company sells bikes and

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Let’s assume Racing Bicycle Company sells bikes and carts and that the sales mix between the two products remains the same.

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5-59 Sales 250,000 \$ 100% 300,000 \$ 100% 550,000 \$ 100.0% Variable expenses 150,000 60% 135,000 45% 285,000 51.8% Contribution margin 100,000 40.0% 165,000 55% 265,000 48.2% Fixed expenses 170,000 Net operating income 95,000 \$ Sales mix 250,000 \$ 45% 300,000 \$ 55% 550,000 \$ 100% Bicycle Carts Total Multi-Product Break-Even Analysis Bikes comprise 45% of RBC’s total sales revenue and the carts comprise the remaining 55%. RBC provides the following information: \$265,000 \$550,000 = 48.2% (rounded)
5-60 Multi-Product Break-Even Analysis Fixed expenses CM ratio = Dollar sales to break even Dollar sales to break even \$170,000 48.2% = = \$352,697 Sales 158,714 \$ 100% 193,983 \$ 100% 352,697 \$ 100.0% Variable expenses 95,228 60% 87,293 45% 182,521 51.8% Contribution margin 63,485 40% 106,691 55% 170,176 48.2% Fixed expenses 170,000 Net operating income Rounding error 176 \$ Sales mix 158,714 \$ 45% 193,983 \$ 55% 352,697 \$ 100.0% Bicycle Carts Total

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5-61 Key Assumptions of CVP Analysis Selling price is constant. Costs are linear and can be accurately divided into variable (constant per unit) and fixed (constant in total) elements. In multiproduct companies, the sales mix is constant. In manufacturing companies, inventories do not change (units produced = units sold).
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