Trimbike is a private limited company based in Nottingham. It manufactures bicycles designed for the commuter market. The bikes fold up and can be put into a convenient carrying case making it easy for users to carry it with them. The bike frames are made from carbon fibre and are very lightweight as a result. The wheels are small and this helps to keep the bike compact. The gears and brakes on the bike have been specially designed and are built by a firm in Germany. This is the only component part that the company does not manufacture itself. This year the company expects sales to be 12,000 units. 85% of its total sales take place in the US. The rest of its sales are in Europe. It does not sell the bikes in the UK. Copyright: Janet Goulden, from stock.xchng. The retail price for the bike is £500. The cost of buying each gear and brake unit from the German firm is €180. At the start of the year, the exchange rate between the pound and the Euro is £1 = €1.45 and the exchange rate between the pound and the US dollar is £1 = $1.90. The total cost of producing each bike, at the current exchange rate, is £400. The profit margin on each bike therefore is £100 or 20%.

Questions:

How many bikes a year will Trimbike expect to sell in the US and how many in Europe?

Assuming the information in the case above is correct and does not change, calculate the profit that the company can expect to receive this year based on sales of 12,000.

The exchange rate between the pound and the Euro averaged out during the year at £1 = €1.140 and not £1 = €1.45. Based on this new exchange rate, calculate the cost of buying one gear and brake unit from Germany before and after the rate change and the total cost of the units before and after assuming production of 12,000 units. Round up your answers to 2 decimal places where necessary.

Given your answer to the above, by how much has the cost of buying the units changed as a result of the change in exchange rates?

Assuming sales are still 12,000 and that other costs remain the same, what would be the effect on Trimbike's profit?

At an exchange rate of £1 = €1.45, what price would a buyer in Europe have to pay (in Euro) to acquire a bike? (Assume they are in the Eurozone and are using that currency).

Given the change in the exchange rate between the pound and the Euro, what price will European buyers now have to pay to acquire the bikes?

If the exchange rate between the pound and the US dollar is £1 = $1.90, how much would a US buyer have to pay to acquire a bike?

If the average exchange rate between the pound and the dollar changed over the year to £1 = $2.00, how much would a US buyer now have to pay to acquire a bike?

As a result of the change in the exchange rate between the pound and the dollar and Euro, sales for the year are not what were predicted. Trimbike still built 12,000 bikes, however. Sales from the US fell by 20% and sales in Europe rose by 5%. Given this new situation, calculate the effect on the revenue and profit of Trimbike for the year.