1497 Words Sep 26th, 2013 6 Pages
To: Vice President

It would be in Competition Bikes, Inc.’s best interest to change from a traditional costing system to an activity-based costing system. In this summary you will find information as to why this change is important as it will highlight the differences between traditional based costing and activity based costing systems. This summary will also give you further findings on Competition Bikes, Inc. breakeven point when evaluating the sales units and the sales dollars and also the influence direct materials and fixed costs have on the breakeven analysis performed.

Costing Method

The traditional costing method is a distribution of manufacturing overhead costs to the actual products manufactured. By using this
Now we multiply these numbers by the total sales mix-in units to reach the contribution margin. The total contribution margin (\$127,200) is divided by the total sales mix-in units (700) in order to receive a weight average contribution margin of \$181.71.

At breakeven the total contribution margin subtracted by the fixed costs will equal 0. The sales units multiplied by the weight average contribution margin equals the fixed cost. From the data given the estimated fixed costs is \$400,000. The fixed costs divided by the weight average contribution margin of \$181.71 can help Competition Bikes, Inc. determine the breakeven point of 2,201 sales units.

Now Competition Bikes, Inc. can calculate sales units and sales dollars with these numbers calculated. By parting the sales at the breakeven point by the product mix-in does this. Competition Bikes, Inc. must sale 1,415 Titanium and 786 CarbonLite models in order to hit their breakeven point and gain profitability.

The sales dollars at the breakeven point are computed by multiplying the breakeven sales units by the sales price per unit. This equals \$1,273,584 for Titanium and \$1,175,314 for CarbonLite models giving us a overall amount of \$2,448,899.

Breakeven Analysis Change

We will now discuss how the changes in direct materials and fixed costs to the production facility based on an evaluation

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