Reference no: EM132611038

Question - E-Scooters Ltd manufactures and sells a single product, electric scooters. The operating results for E-Scooters Ltd in 2015 are as follows: $ Sales (2000 units @ $800) 1,600,000 Less: Variable costs 700,000 Contribution margin 900,000 Less: Fixed costs 450,000 Profit 450,000 In order to improve the range the electronic scooter can travel between charges, EScooters Ltd has decided to change the type of motor used in the scooters beginning in 2016. The new motor was developed using the latest technology and it allows the scooter to travel longer distance. Given that E-Scooters will purchase the motor from a supplier in bulk, it managed to negotiate the best price. This will decrease the variable cost per scooter by $50. Given the latest technology, E-Scooters believes that the new scooter can be sold at a higher price. Hence, the price of the new scooters will be increased to $950 each. In order to raise awareness of the new electric scooter, E-Scooter Ltd will spend $80,000 in 2016 in an aggressive promotion campaign. The company expects that the campaign will cause demand to increase to 2200 units, despite the increased in price.

Required -

(a) What is the contribution margin per unit for 2016?

(b) How many scooters would E-Scooters have to sell in order to earn as much profit in 2016 as it did in 2015?

(c) Suppose that E-Scooters would like to earn a before-tax profit of $1,000,000 in 2016. How many scooters E-Scooters have to sell to earn the profit?