Question

A bicycle store costs $1700 per month to operate. The store pays an average of $75 per month. The average selling price of each bicycle is $95. How many bicycles must the store sell each month to break even?

Answer 1

The formula in computing the break-even point is:

Break-even = fixed cost / contribution margin

The fixed cost is already given which is $1700 per month. To compute for the contribution margin, you have to deduct the average cost per month ($75) to the selling price of each bicycle ($95). The contribution margin is $20 ($95 - $75).

Substituting the amounts to the formula:

Break-even = $1,700/$20

                     = 85

Therefore, the store must sell 85 bicycles each month to break even.