Suppose rbc wants to know how many bikes must be sold

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Suppose RBC wants to know how many bikes  must be sold to break-even                 (earn a  target profit of $0).  Profits are zero at the break-even point.
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5-40 Break-even in Unit Sales: Equation Method $0  =  $200  ×  Q  +  $80,000 $200  ×  Q = $80,000 Q  =   400  bikes Profits  =  Unit CM  ×  Q – Fixed expenses
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5-41 Break-even in Unit Sales: Formula Method Let’s apply the formula method to solve for the break-even point. Unit sales =   400 $80,000 $200 Unit sales = Fixed expenses CM per unit = Unit sales to break even
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5-42 Break-even in Dollar Sales: Equation Method Suppose Racing Bicycle wants to compute the  sales dollars required to break-even (earn a  target profit of $0). Let’s use the equation  method to solve this problem. Profit  =  CM ratio  ×  Sales – Fixed expenses Solve for the unknown “Sales.”
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5-43 Break-even in Dollar Sales: Equation Method Profit  =  CM ratio  ×   Sales  – Fixed expenses $ 0  =  40%  ×  Sales – $80,000 40%  ×  Sales =  $80,000 Sales = $80,000  ÷  40% Sales =  $200,000
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5-44 Break-even in Dollar Sales: Formula Method Now, let’s use the formula method to calculate the  dollar sales at the break-even point. Dollar sales =   $200,000 $80,000 40% Dollar sales = Fixed expenses CM ratio = Dollar sales to break even
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5-45 Quick Check  Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales dollars? a. $1,300 b. $1,715 c. $1,788 d. $3,129
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5-46 Quick Check  Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales in units? a. 872 cups b. 3,611 cups c. 1,200 cups d. 1,150 cups
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5-47 The Margin of Safety in Dollars The margin of safety in dollars is the excess of budgeted (or actual) sales over the break- even volume of sales. Margin of safety in dollars = Total sales - Break-even sales Let’s look at Racing Bicycle Company and  determine the margin of safety.
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5-48 The Margin of Safety in Dollars If we assume that RBC has actual sales of $250,000, given that we have already determined the break-even sales to be $200,000, the margin of safety is $50,000 as shown. Break-even sales 400 units Actual sales 500 units Sales 200,000 $ 250,000 $ Less: variable expenses 120,000 150,000 Contribution margin 80,000 100,000 Less: fixed expenses 80,000 80,000 Net operating income - $ 20,000 $
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5-49 The Margin of Safety Percentage RBC’s margin of safety can be expressed as 20% of sales.
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