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Speedy's Scooters plans to sell a standard scooter for $55 and a chrome scooter for $70. Speedy's purchases the standard scooter for $30 and the chrome scooter for $40. Speedy expects to sale one standard scooterfor every three chrome scooters. Speedy's monthly fixed costs are $23000. How many of each type of scooter must speedy's scooters sell each month to break even?

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Answer:

200 standard scooters  and 600 standard scooters

Explanation:

The computation of the each type of scooter to break even is shown below:

As we know that

Contribution margin per unit = Selling price per unit - variable cost per unit

So for standard scooter, it is

= $55 - $30

= $25

And, for chrome scooter, it is

= $70 - $40

= $30

Plus, it is given that the ratio between standard scooter and chrome scooter = 1 : 3

Now the weighted average contribution margin per unit is

= $25 × 1  ÷ 4 + $30 × 3 ÷ 4

= $6.25 + $22.50

= $28.75

So,

Break even units = Fixed costs ÷ weighted average contribution margin per unit

= $23,000 ÷ $28.75

= 800 units  

So for standard scooter, it is

= 800 × 1 ÷ 4

= 200 standard scooters  

And for chrome scooter, it is

= 800 × 3 ÷ 4

= 600 chrome scooters

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