Question

A bicycle store costs $4500 per month to operate. The store pays an average of $60 per bike. The average selling price of each bicycle is $120. How many bicycles must the store sell each month to break even?

Answer 1

75 bicycles each month to break even.

Explanation:

To break even, the total revenue of the store must be equal to its total expenses. Let's first calculate the total variable cost, which is the cost directly associated with each bike sold:

Total variable cost per bike = $60

Total fixed cost = $4500

Now let's calculate the contribution margin per bike, which is the difference between the selling price and the variable cost:

Contribution margin per bike = $120 - $60 = $60

To break even, the total contribution margin must be equal to the total fixed cost:

Contribution margin x number of bikes sold = Fixed cost

$60 x number of bikes sold = $4500

Number of bikes sold = $4500/$60

Number of bikes sold = 75

Therefore, the store needs to sell 75 bicycles each month to break even.