Bikes "R" Us makes three different types of bicycles: Mountain Bikes, Road Bikes, and Dirt Bikes.

Bikes "R" Us is faced with making two important decisions -- one decision will impact the company in the short-term, and the other decision will impact the company in the long-term.

PART 1:

The short-term decision is regarding an order they received from a company, NZ Bikes, in New Zealand.

Bikes "R" Us normally sells its Mountain Bikes to retailers for $1,000 each, its Road Bikes to retailers for $1,500 each, and its Dirt Bikes to Retailers for $500 each.

Below is the manufacturing cost information for each type of bike:

	Mountain Bike	Road Bike	Dirt Bike
Number of Bikes Produced	2,950	2,000	500
Materials	$150,000	$200,000	$85,000
Labor	$240,000	$280,000	$100,000
Variable Overhead	$90,000	$60,000	$50,000
Fixed Overhead	$50,650	$56,000	$30,000
Total	$530,650	$596,000	$265,000

NZ Bikes would like Bikes "R" Us to manufacture 10,000 Mountain Bikes and sell the Mountain Bikes at a price of $185 per bike.

Currently, Bikes "R" Us sells it's Mountain Bikes to its regular customers for $1,000 per bike.

If Bikes "R" Us accepts the offer, NZ Bikes would sell the bikes under its own name in New Zealand and would only impact markets not served by Bikes "R" Us.

Bikes "R" Us is currently manufacturing its Bikes at full capacity and accepting the offer would cause its fixed costs to increase from $50,650 to $60,000 to pay for the expansion of the factory and extra machinery to manufacture the 10,000 additional Mountain Bikes.

In addition, if Bikes "R" Us accepts the order, they will have to pay $120,000 in shipping costs to ship the Bikes to New Zealand from Columbus, OH.

If the order is accepted, Bill Gates (the top salesman for Bikes "R" Us) would also have to be paid a commission of 10% of the sales revenue from the order, because

NZ Bikes is Bill Gates' top client and came to Bill Gates with the offer.

The CFO of Bikes "R" Us knows that you are the best Managerial Accountant in the company and would like your advice on whether to reject or accept the offer.

Use the information above to answer parts (a) - (d) for Part 1.

(a) Using Excel, prepare an incremental analysis for the special order.

NOTE: In order to receive full credit, you must create an incremental analysis table in excel and utilize formulas in your table. You must use at least 4 formulas. Each formula will be worth 1 point each, up to 4 points.

(b) Answer the 'fill in the blank' question under this problem related to 1(a).

(c) Assume that NZ Bikes changed the offer to where they would pay for the shipping costs and Bikes "R" Us would not have to pay for the shipping costs. Using Excel, prepare an incremental analysis for the special order with the new condition.

NOTE: In order to receive full credit, you must create an incremental analysis table in excel and utilize formulas in your table. You must use at least 4 formulas. Each formula will be worth 1 point each, up to 4 points.

(d) Answer the 'fill in the blank' question under this problem related to 1(c).

PART 2:

The long-term decision is regarding the three Bikes currently produced by Bikes "R" Us.

Cost-Volume-Profit (CVP) information about the three bikes is given below:

	Mountain Bikes	Road Bikes	Dirt Bikes
Sales	3,000,000	3,000,000	252,000
Variable Expenses	480,000	540,000	235,000
Contribution Margin	2,520,000	2,460,000	17,000
Fixed Expenses	50,650	56,000	30,000
Net Income	2,469,350	2,404,000	(13,000)

When the CFO saw the CVP information above he immediately wanted to discontinue the Dirt Bikes line because he believes the company would increase their total Net Income if they discontinue the Dirt Bikes.

The CFO came to you asking you to confirm if dropping the Dirt Bikes line of bikes would result in extra Net Income.

NOTE: If the Dirt Bikes line is dropped, none of the fixed costs for the Dirt Bikes would be eliminated.

Use the information above to answer parts (a) - (b) for Part 2.

(a) Using Excel, prepare an incremental analysis for the elimination of the Dirt Bikes Product Line.

NOTE: In order to receive full credit, you must create an incremental analysis table in excel and utilize formulas in your table. You must use at least 7 formulas. Each formula will be worth 1 point each, up to 7 points.

(b) Answer the 'fill in the blank' question under this problem related to 2(a).

NOTE:

You must create your own spreadsheet for Parts 1 and Parts 2.

Upload the spreadsheet (in Microsoft Excel format only) using the upload link.

You must use formulas in your spreadsheet as instructed. Failure to use formulas will result in a deduction of 1 point for every place you do not use a formula where required.