Home
/
Business
/
Safe Ride Itd. makes and sells bikes. The fixed cost of operating the workshop for a month totals £1,800. Each bike requires materials that cost f70 Each bike requires 4 hour to make, costing E20 per hour in labour costs. Once ready for sale each bike is sold to a wholesaler for £200. What is the Break Even Point in number of bikes for the business? 36 bikes None of the options. 130 bikes 40 bikes

Question

Safe Ride Itd. makes and sells bikes.
The fixed cost of operating the workshop for a month totals £1,800.
Each bike requires materials that cost f70
Each bike requires 4 hour to make, costing E20 per hour in labour costs.
Once ready for sale each bike is sold to a wholesaler for £200.
What is the Break Even Point in number of bikes for the business?
36 bikes
None of the options.
130 bikes
40 bikes

Safe Ride Itd. makes and sells bikes. The fixed cost of operating the workshop for a month totals £1,800. Each bike requires materials that cost f70 Each bike requires 4 hour to make, costing E20 per hour in labour costs. Once ready for sale each bike is sold to a wholesaler for £200. What is the Break Even Point in number of bikes for the business? 36 bikes None of the options. 130 bikes 40 bikes

expert verifiedVerification of experts

Answer

4.1192 Voting
avatar
ValerieVeteran · Tutor for 9 years

Answer

36 bikes.

Explain

## Step 1: Understand the Problem<br />The problem given here refers to the break-even point which is a fundamental concept in economics and finance. Break-even point refers to the point where total cost (TC) equals total revenue (TR) thus leaving zero profit or loss. Given here are the fixed costs for operating the workshop for a month (£1800), the cost of the materials required for making each bike (£70), labour costs for making each bike (£80) and the selling price of each bike (£200). Our aim is to find out how many bikes must be sold in a month for the business to break-even.<br /><br />## Step 2: Determine the Formulas<br />There are two important formulas or relationships we are going to use in this problem:<br /><br />**Total Cost (TC)** is the sum of fixed costs and variable costs, which in this case represented by material costs and labor costs for each bike. <br />**Total Revenue (TR)** is obtained by multiplying the selling price (P) with quantity (Q) of the bikes sold.<br />Fully written out this is:<br />**TC = FC + VC\*Q and TR = P\*Q** <br /><br />When the business is breaking even Total Cost equals Total Revenue, hence we can derive<br />**TC = TR, hence FC + VC\*Q = P\*Q.**<br /><br />When rearranging for Q we can write,<br />**Q = FC/(P-VC)**.<br /><br />## Step 3: Plug in the Known Quantities and solve the equation<br />We can plug in the values given in the problem into our formula. <br />Feeding our variables from our problem into the formula yields:<br /><br />**Q = £1800/(£ 200 - (£ 70 + £ 20\*4))**. Our Variable cost VC which is the sum of direct labour and material costs hence equals £ 150<br /><br />**Q = £1800 / (£200-£150)** becomes **Q = £1800 / £50**<br /><br />By performing the above division operation, we get <br /><br />**Q = 36**<br /><br />This means that in a month, the company needs to sell 36 bikes to break-even.
Click to rate:

Hot Questions

More x