ACCT1116 Case Study Data-d Data View Review Formulas O Tell me what you want to do. File Home Insert Page Layout fx 30 D D E F G B Question 3 - Product line Analysis (33 marks) The owners of Mountain Sports Ltd. are currently 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 BMX line be introduced next spring. 3 Management has estimated the following: 5 Expected sales in bikes 460 Average selling price per bike $ 364.00 7 Purchase cost (COGS) per bike $ 130.00 8 Assembly cost per bike $ $ 64.00 9 Sales clerks required - seasonal 2 10 Monthly Salary per Sales Clerk $ 1,245 11 Sales commissions 12% 12 Advertising campaign (annual cost) $ 5,570 13 14 The additional sales clerks required for the BMX line will only work for four months of the year (May to August). 15 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. 16 17 BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL 18 19 Per Bike Percentage 20 Number of Bikes 460 21 Sales Revenue 100% 22 Less: Variable Costs (must be listed alphabetically) Case Intro Group Members Q1 02 Q3 Q4 05 06 Ready Group Member Evaluation + H o GED xu PO ACCT1116 Case Study Data 5 Data Review View Formulas O Tell me what you want to do... Insert Home Page Layout fr B. D DE F G 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 460 Sales Revenue 100% Less: Variable Costs (must be listed alphabetically) 5 + 3 Total Variable Costs 7 8 Less: Fixed Costs (must be listed alphabetically) 9 30 31 Total Fixed Cost 32 BMX SEGMENT MARGIN 42,577 Case Intro Group Members 01 Q2 Q3 Q4 Q5 Q6 Ready Group Member Evaluation + XD ACCT1116 Case Study Data Data Review Formulas View Tell me what you want to do. Home Page Layout File Insert G K30 B A D F E F 34 Required Part B (Chapter 6 & 7) (8 marks): This new BMX bike product line will create an increase in sales of two departments: Accessories, and Parts & Service (refer to 02 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). 35 36 Increase in Accessories Sales 37 Increase in Parts & Service Sales 38 Decrease in Mountain Bikes Sales 39 10% 14% 5% 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, 40 contribution margin should be used in your calculations for the other product lines). 41 42 Increase in BMX Segment Margin $ 42,577 43 Increase in Contribution Margin - Accessories 44 Increase in Contribution Margin - Parts & Service Decrease in Contribution Margin - Mountain Bikes 45 (show as negative number) 46 NET Increase (Decrease) in Operating Income " 48 DECISION: Should the company add the BMX bike product line? 49 Why or why not? 7 50 51 Required Part C: Pricing (Chapter 9) (12 marks) Assume management has decided to go ahead with offering the BMX product line. Case Intro Group Members 01 02 Q3 04 Q5 Q6 06 Group Member Evaluation Ready + o