Question
Red Cup Inc. is a company that produces high-end electric bicycles. It costs them $600,000 per year in fixed costs, such as rent, salaries, and
Red Cup Inc. is a company that produces high-end electric bicycles. It costs them $600,000 per year in fixed costs, such as rent, salaries, and utilities. The variable cost of producing each electric bicycle, including materials, labor, and shipping, is $700. They are considering two strategies for pricing their electric bicycles:
1. Pricing the bikes at $1,400 each. Market research suggests they could sell about 1,500 bikes per year at this price.
2. Pricing the bikes at $1,000 each. At this price, they expect to sell about 2,500 bikes per year.
Red Cup Inc. also offers a 1-year maintenance plan for each bike sold, priced at $100. The variable cost for providing this service is $30 per plan. They expect to sell one maintenance plan for every two bikes sold, regardless of the bike's price.
Calculate:
1. The break-even point in terms of number of bikes sold for each pricing strategy, ignoring the maintenance plan.
2. The break-even point when considering the expected sales of both bikes and maintenance plans under each pricing strategy.
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