5-3 Five partners have decided to form a bicycle manufacturing company.

At the
moment, the partners are making the final arrangements to start the factory's
operations, as well as several market studies, from which the following data can be
derived:

Estimated sales for the first fiscal year: 1 000 bicycles

Price at which each bicycle can be sold: $1 500
According to the experts' opinion, the estimated fixed costs are:

Fixed interest costs $10 000

Fixed production costs 40 000
Fixed administrative costs 30 000
Fixed cost of sales 20 000
Total fixed costs $100 000
Jaime Chavez, one of the partners, after analyzing the costs of manufacturing each
bicycle, concluded that the unit variable costs were as follows:

Materials $450
Screws and rivets 50
Tires 100
Total variable costs 600 per unit
After several weeks of processing the opening of the company, which will be called
Bicicletas del Centro de México, Carlos Amaya, also a partner, asks his colleagues
for advice to determine the break-even point during the first period of operations.

It further requests the following:

a) Assuming that the company manages to sell the units estimated by the
market study, what will be the margin of safety in pesos? (It is necessary to
graphically illustrate the break-even point by showing the margin of safety).

costo fijo totales

Break-even point =
precio−costo variable

100.000 100.000
P.E = = =111.111UNIDADES
1500−600 900
 P.E = 111,111 units

Weighted contribution margin

M . C . P 900
M.C.P. % = + =0.6=60 %
P .V 1500

C . F . T $ 100.000
+ =$ 166,666.66
M .C. P 60 %

P.E = $166,666.66

91 101 111 121 131

Sales or $136.500 $151.500 $166.666 $181.500 $196.500
revenues
Variable cost 54.600 60.600 66.666 72.600 78.600
Margin cont. o $81.900 $90.900 $100.000 $108.900 $117.900
profit
Total fixed costs 100.000 100.000 100.000 100.000 100.000
Break-even point $18.100 $9.100 $0 $8.900 $17.900
 b) If, due to a 10% increase in the company's fixed costs, the managers
decided to raise the price of each bicycle to $1,600, what would be the new
break-even point in units and in pesos? (Show graphically.)

costo fijo totales

Break-even point =
precio−costo variable

110.000 110.000
P.E = = =110 UNIDADES
1.600−600 1.000

E.P. = 110 UNITS

Percentage contribution margin

M . C . U 900
M.C.P % = + =0.562
P.V . 1.600

C . F . T 110.000
= =$ 195,729.537 PESOS
M .C. P 0.562

P.E = $195,729.537 PESOS

90 100 110 120 130

Sales or revenues $144.000 $160.000 $176.000 $192.000 $208.000
Variable cost 54.000 60.000 66.000 72.000 78.000
Margin cont. o $90.000 $110.000 $110.000 $120.000 $130.000
profit
Total fixed costs 110.000 110.000 110.000 110.000 110.000
Break-even point $20.000 $10.000 $0 $10.000 $20.000
c) Regardless of the previous point, if fixed costs were reduced to $90,000 by
productivity strategies and the price increased by $150, what would be the
new unit contribution margin, the percentage contribution margin, the new
break-even point in pesos and units, and the safety margin in units?
Express graphically your answer assuming that the estimated units are sold.

Total fixed costs = $ 90,000.00

Price = $1,650.00
Variable cost = 600
Unit contribution margin
M.C.U = P.V - C.V
M.C.U = 1,650 - 600 = $1,050
Percentage contribution margin
M .C.U
M.C.P =
P .V
1,050
M.C.P = =0.636
1,650
Break-even point in units
 C. F.T
P−C . V
90 000 90 000
P.E = = =85.714 UNIDADES
1,650−600 1,050
Break-even point in pesos
C . F . T 90 000
= =$ 141,509.43 PESOS
M . C . U 0.636

66 76 85.714 96 106
Sales or revenues $108.900 $125.400 $141.428 $158.400 $174.900
Variable cost 39.600 45.600 51.428 57.600 63.600
Margin cont. o $69.300 $79.800 $90.000 $100.800 $111.300
profit
Total fixed costs 90.000 90.000 90.000 90.000 90.000
Break-even point $20.700 $10.200 $0 $10.800 $21.300

d) Disregarding the above points, what would happen if the current contribution
margin were reduced by 10%? Calculate the break-even point in pesos and
in units, and the decrease in margin in pesos assuming that variable costs
remain constant.

M.C. = P.V - C.V

M.C = 1500 - 600 = 900

REDUCE = 900 * 10% (-) = 90

M.C = 900 - 90 = 810

P.V = 1500 - 90 = 1410

Break-even point one unit

C . F .T 100 000 100 000

P.E = = = =123.4567 UNIDADES
P−CV 1 410−600 810