Due to the sluggish economy, the Bi-Wheels Company has experienced some difficulty in selling its bicycles.The following data relate to the current year: Required:
1. Compute Bi-Wheels' annual breakeven point, in both units and dollars. Also, compute the contribution margin ratio.
2. The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the net effect on the company's operating income (πB)?
3. Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in selling price in combination with a $30,000 increase in advertising will cause sales volume to increases by 50%. What effect would this strategy have on operating income (πB) of the company?
4. Refer to the original data. In the following year, Bi-Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Bi-Wheels' rent and insurance increased by $5,600. The store sold 11,000 bikes. What was its operating income (πB) for the year?

Question

Due to the sluggish economy, the Bi-Wheels Company has experienced some difficulty in selling its bicycles.The following data relate to the current year:  Required:
1. Compute Bi-Wheels' annual breakeven point, in both units and dollars. Also, compute the contribution margin ratio. 
2. The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the net effect on the company's operating income (πB)?
3. Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in selling price in combination with a $30,000 increase in advertising will cause sales volume to increases by 50%. What effect would this strategy have on operating income (πB) of the company?
4. Refer to the original data. In the following year, Bi-Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Bi-Wheels' rent and insurance increased by $5,600. The store sold 11,000 bikes. What was its operating income (πB) for the year?

Quizplus · Accepted Answer

The Answer of Due to the sluggish economy, the Bi-Wheels Company has experienced some difficulty in selling its bicycles.The following data relate to the current year:  Required:
1. Compute Bi-Wheels' annual breakeven point, in both units and dollars. Also, compute the contribution margin ratio. 
2. The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the net effect on the company's operating income (πB)?
3. Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in selling price in combination with a $30,000 increase in advertising will cause sales volume to increases by 50%. What effect would this strategy have on operating income (πB) of the company?
4. Refer to the original data. In the following year, Bi-Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Bi-Wheels' rent and insurance increased by $5,600. The store sold 11,000 bikes. What was its operating income (πB) for the year?

Due to the Sluggish Economy, the Bi-Wheels Company Has Experienced