Change to Activity-Based Costing in Competition Bikes Inc: A Case Study

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Summary Report to the Vice President of Competition Bikes, Inc. In order to make an informed decision about whether to change our current costing method to activity-based costing, we need to take into consideration a number of variables. To that end, an evaluation of cost, volume, and profit has been undertaken in order to weigh the pros and cons before recommending a shift in the manufacturing approach. Since Competition Bikes, Inc. has made the decision to acquire the Titanium technology that has been developed by Canadian Biking, both types of technology must be factored into the decision-making process. With regard to sales units and sales dollars, we need to analyze the breakeven point for both types of bikes, CarbonLite and Titanium. This report will summarize those findings. Comparative Income Statements for Years 6, 7, and 8 reflect a disparity that demands our attention. Year 8 Year 7 Year 6 Gross Profit 1,371,400 1,638,000 1,191,000 Net Earnings 36,100 196,294 47,479 Disparities in these numbers can be explained in a number of ways, most of which may be due to the addition of Titanium technology and Titanium bikes to the inventory. However, because this alone is not enough to satisfactorily explain the wide divergence in numerical outcomes, further investigation may be warranted. Breakeven Point Analysis For Competition Bikes, Inc. to break even, its total sales or revenues must equal its total expenses. The addition of Titanium bikes to the

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