Blazing Saddles

Blazing Saddles, a manufacturer of low$-$priced, entry level mountain bikes, is considering an investment of $$1,300,000$ in process innovation. If made, the investment will enable workers to manufacture their bikes in $20$ minutes, as opposed to the current $30$ minute time required.

Bike makers are paid $$50$ per hour.

The component costs for Blazing Saddles$$ bike are as follows:

Component Per unit cost $CAD

Frame $,$ fork and handlebars $$122$

Rim $/$ wheel $$60$

Derailleur set $($front & rear$)$ $$40$

Saddle and seat post $$31$

Crank kit $$28$

Cables and cable housing $$8$

Blazing saddles plans to pass some of the cost savings from their process innovation on to customers to capture a greater portion of the market. Their current bike price is $$600$; they plan to reduce this price by $10\%$ if they proceed with the investment. Blazing Saddles fixed costs are $$2,000,000$ and are expected to remain constant for the foreseeable future.

Question $3$

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Question text

Blazing Saddles

$1.$ Based on the numbers above, if $14,000$ units were sold last year, profits for last year would be:

Revenue $ Answer $1$ Question $3$

Less: COGS $ Answer $2$ Question $3$

Gross Profit $ Answer $3$ Question $3$

Less: Operating Costs $ Answer $4$ Question $3$

Profit $($Loss$)$ $ Answer $5$ Question $3$

Return on Sales $=$ Answer $6$ Question $3$

$\%$

$2.$ If the company makes the investment described above, calculate the breakeven units required while maintaining the same profit as last year:

Price $=$ $Answer $7$ Question $3$

Operating Costs $=$ $Answer $8$ Question $3$

Variable Cost $=$ $Answer $9$ Question $3$

$/$unit

Breakeven $=$ Answer $10$ Question $3$

units