Business A bicycle store costs 2400 per month to operate....

Business A bicycle store costs $\$ 2400$ per month to operate. The store pays an average of $\$ 60$ per bike. The average selling price of each bicycle is $\$ 120 .$ How many bicycles must the store sell each month to break even?

Key Concepts

Break-even Analysis

Break-even analysis is a financial evaluation technique that determines the number of units a business must sell to cover its total costs, which include both fixed and variable costs. It provides a clear point at which revenue equals total expenses, indicating that the business is neither making a profit nor a loss.

Fixed Costs

Fixed costs are the expenses that remain constant regardless of the number of units produced or sold. These costs, such as rent, salaries, or utilities, must be paid regardless of sales volume and are critical in calculating the break-even point since they must be covered by the contribution from each product sold.

Variable Costs

Variable costs are the expenses that change directly with the production volume or sales. These costs, such as raw materials and direct labor, increase when more units are produced. In break-even calculations, the variable cost per unit is subtracted from the selling price to determine the contribution of each unit toward covering fixed costs.

Contribution Margin

The contribution margin is the difference between the selling price per unit and the variable cost per unit. It represents the amount each sale contributes to covering fixed costs and, once these are covered, to generating profit. A higher contribution margin means that fewer units need to be sold to reach the break-even point.

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