3. The property times are set by the City and do not change with changes in sales volume. 4. Rent has two components: Monthly amount 5,000 Percentage based on each department's sales 3% 5. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parls 8: service expense for the parts 8: service department. 5. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts 8( Service department employees do not earn sales commissions on their sales. Sales commissions 11% Total yearly salary of employees that sell skis, bikes, and accessories. These employees will continue to work for the company regardless of which product lines are offered. 5 51.000 The store managers are paid a total yeariy salary. They are responsible for all of the departments. These managers will continue to work even if any of the divisions are closed. 5 78,000 The Parts 8!. Service Employees only work in that department. If this department were closed, the technicians would be laid off. The total salary for the technicians is 5 "5,000 T. Ulies are the same regardless of activity and will not change even if a product line is dropped. 8. Interest expense is charged on the outstanding bank loans. The total interest q 5 7,000 9. Income taxes are calculated for the company as a whole. The company will have to pay taxes regardless of which product lines it offers. Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 Cross Country Ski Mountain Parts & Notes Packages Bikes Accessories Service TOTAL Sales 623,047 734,066 287,590 138,215 1,782,918 Cost of goods sold % 14% 17% 25% 19% Cost of goods sold 276,633 341,414 72,789 26,731 717,567 Gross Profit 346,414 392,652 214,801 111,484 1,065,351 Operating expenses Advertising 1 38,543 47,352 10,097 8,008 104,000 Depreciation 5,570 5,570 5,570 5,570 22,280 Property t 8,620 8,620 8,620 8,620 34,478 Rent 28,372 28,372 28,372 28,372 113,488 Parts & service expense 35,625 41,973 16,444 0 94,042 Salaries & commissions 106,639 106,639 106,639 75,000 394,917 Utilities 7 25,824 25,824 25,824 25,824 103,297 Total Operating Expenses 249,193 164,350 201,566 151,39 866,502 Operating income (loss 97,221 128,302 13,235 39,905 198,849 Interest expense 1,750 1,750 1,750 1,750 7,000 Income (Loss) before taxes 95,471 126,552 11,485 41,659 191,849 Income tax 26.00% 17,431 20,537 8,046 3,867 19,881 Net Income (Loss $78,040 $106,015 $3,439 -$45,526 $141,969 Notes to the financial statements: 1. Advertising is committed to at the beginning of the period by management. Management has many different forms of advertising campaigns with different focuses as follows: Cross country ski packages Mountain Accessories | Parts & Service Promotes TOTAL Bikes company as a whole $ 34,000 |$ 42,000 $ 8,000 $ 7,000 $ 13,000 $104,000 2. The company uses the straight-line method of depreciation.The additional sales clerks required for the BMX line will only work for four months of the year (May to August). Required: Part A (Chapter 6) (13 marks): Prepare a CVP income statement (for a one year period) to determine the segment margin for the new BMX Bikes product line. BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Percentage Number of Bikes 420 Sales Revenue 100% Less: Variable Costs (must be listed alphabetically) Total Variable Costs Less: Fixed Costs (must be listed alphabetically) Total Fixed CostRequired Part B (Chapter 6 & 7) (7 marks): This new BMX bike product line will create an increase in sales of two departments: Accessories (refer to Q.2 segmented income statement for department information). However, due to the floor space required for retailing BMX Bikes, management estimates that sales of Mountain Bikes will decrease (hint: remember that variable costs will also change when sales change). Increase in Accessories Sales 13% Decrease in Mountain Bikes Sales 8% What is the impact to the company's income as a whole if the BMX product line is added (hint: consider the segment margin of the BMX product line, and the impact to the other product lines. Remember that if sales change for a product line, the total variable costs will also change. Thus, contribution margin should be used in your calculations for the other product lines). Increase in BMX Segment Margin Increase in Contribution Margin - Accessories Decrease in Contribution Margin - Mountain Bikes (show as negative number) NET Increase (Decrease) in Operating Income DECISION: Should the company add the BMX bike product line? Why or why not?Required Part C: Pricing (Chapter 9) (9 marks) Assume management has decided to go ahead with offering the BMX product line. The owners of Mountain Sports are concerned about the ability of BMX to cover its fixed costs and provide a good return on investment (ROI). An investment is required for the necessary fixtures, display racks, and inventory. The owners have provided the minimum return on investment below. Use the cost information and unit sales provided in part A above to answer the questions below. Suggested selling price $ 852.00 Required investment in assets $ 207,000 Minimum return on investment 12% Calculate the following: Unit product cost (costs incurred to get the bike ready for sale) Total selling & administrative costs (costs that help sell the bike or run the business as a whole) Selling & administrative cost per bike Desired return on investment per bike Markup percentage using absorption costing Suggested selling price using absorption costing Is the suggested selling price (noted in part A) sufficient to earn the required return expected by the owners? Are there any other considerations management should take into account before adding the product line?A B C D E F Question 3 - Product line Analysis [29 marks} The owners of Mountain Sports Ltd. are currentlyr reviewing a proposal to adopt a new product line - BMX Bicycles. This new product line will be compatible with the Mountain Bikes and open a new target market. younger customers. It is anticipated that the EM): line be introduced next spring. Management has estimated the following: Expected sales in bikes 420 Average selling prioe per bike 5 352.00 Purchase oost {COGS} per bike 5 10100 Assembly cost per bike 5 55.00 Sales clerks required seasonal 2 Monthly Salaryr per Sales Clerk 5 1,231 Sales oommissions 15% Advertising campaign [annual cost} 5 5,939 The additional sales clerks required for the BMX line will only work for four months of the year {May to August]. Required: Part A (Clapper 6:: {13 marks}: Prepare a (NP inoume statement [for a one year period) to determine the segment margin {or the new BMX Bikes product line. BMX Product Line Budgeted CUP Income Statement For the year ended December 31. 2020 TOTAL Per Bike Percentage Number of Bikes 42D Sales Revenue 100% Less: Variable Costs [must be listed alphabetically)