This exercise asks you to apply Contribution Analysis to Colorado Ricardo Mountain Bikes.
The Scenario: Colorado Ricardo Mountain Bikes
Colorado Ricardo Mountain Bikes was founded by Ricardo Francisco, a keen off-road cyclist who grew frustrated with bikes breaking down under the strain of the Colorado mountains. After years of trial and error, he built a bike tough enough to survive the terrain and named it the “Colorado Ricardo”. Word spread quickly among local riders, and Ricardo gave up his day job to build and sell bikes full-time from a small workshop outside Denver.
Colorado Ricardo sells each bike for $1,200 and it costs $700 in variable costs (materials, direct labour and variable overhead) to build. Fixed costs for the year are $1,800,000. This year the business sold 4,000 bikes, down from a peak of around 10,000.
Once you have drafted your own answer, compare it with Marketing Teacher’s suggested answer.
