Tanner and Angela want to open a custom skateboard shop as a partnership busines

Question

Tanner and Angela want to open a custom skateboard shop as a partnership business. They have prepared several cost estimates and are working on a breakeven analysis for their firm. They have gathered the following information:

• It is estimated that a skateboard will sell for $160 per unit.

• Variable expenses per skateboard are estimated to be as follows: a. Each skateboard costs $15 in raw materials. b. It takes 3 hours to make each skateboard; Each skateboard maker earns $25 per hour.

• Fixed expenses of the skateboard business, including facility rental are estimated to be $20,000 per month.

1. What is the Contribution Margin earned on each skateboar that is sold?

2. How many skateboards must be sold each month in order to break even?

3. What is the breakeven dollar amount in Sales per month?

Explanation / Answer

Contribution margin ratio= Contribution÷Sales

= ($160-$15-$25×3)÷$160

= $70/$160

= 43.75%

Breakeven in units = Fixed costs÷Contribution per unit

= $20,000/$70

= 285.71 or 286 units

Breakeven in dollars = Fixed costs÷Contribution margin

= $20,000/43.75%

= $45714.29 or $45,760

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