Cuestion 3 Product line Analysis (29 marks) The owners of Mountain Sports Ltd. are currently reviewing a proposal to adopt a new product line - BMX Bioyoles. This new product line will be compatible with the Mountain Bikes and open a new target market. younger oustomers. It is anticipated that the BMX line be introduced next spring 370 Management has estimated the following: Expected sales in bikes Average selling price per bike Purchase cost(COGS per bike Assembly cost per bike Sales clerksrequired seasonal Monthly Salary per Sales Clerk Sales commissions Advertising campaign annual cost 382.00 124.00 56.00 1 1.312 15% 5.832 The additional sales olerks 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 CYP income statement (for a one sea determine the segment margin for the new BMX Bikes product line. period) to Percentage BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Number of Bikes 370 Sales Revenue Less: Variable Costs ( must be listed alphabetically 100% Total Variable Costs Less: Fixed Costs (must be listed alphabetically) Total Fixed Cost Pleared Part B Chapter 6 marts This new BMX bike product line will create an increase in sales of two departments: Accessories (refer to Q2 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 deorease (hint: remember that variable costs will also change when sales change). Increase in Accessories Sales Decrease in Mountain Bikes Sales 672 Vhat 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 vill also change. Thus. contribution margin should be used in your calculations for the ------------ Increase in BMX Segment Margin - Inorease 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? Vh or wh 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 fized 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. 1 32Suggested selling price 382.00 6 Required investment in assets 201.000 54 Minimum return on investment 162a 55 56 Calculate the following: Unit product cost (costs incurred to get the bike Stready for sale Total selling & administrative costs (costs that 58 help sell the bike or run the business as a whole 59 Selling 8 administrative cost per bike 60 Desired return on investment per bike 61 Markup percentage using absorption costing 62 Suggested selling price using absorption costing 63 63 Is the suggested selling price (noted in part A) sufficient to earn the required return expected by the ovners? Are there any other considerations management should take into account before adding 67 the product line? Cuestion 3 Product line Analysis (29 marks) The owners of Mountain Sports Ltd. are currently reviewing a proposal to adopt a new product line - BMX Bioyoles. This new product line will be compatible with the Mountain Bikes and open a new target market. younger oustomers. It is anticipated that the BMX line be introduced next spring 370 Management has estimated the following: Expected sales in bikes Average selling price per bike Purchase cost(COGS per bike Assembly cost per bike Sales clerksrequired seasonal Monthly Salary per Sales Clerk Sales commissions Advertising campaign annual cost 382.00 124.00 56.00 1 1.312 15% 5.832 The additional sales olerks 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 CYP income statement (for a one sea determine the segment margin for the new BMX Bikes product line. period) to Percentage BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Number of Bikes 370 Sales Revenue Less: Variable Costs ( must be listed alphabetically 100% Total Variable Costs Less: Fixed Costs (must be listed alphabetically) Total Fixed Cost Pleared Part B Chapter 6 marts This new BMX bike product line will create an increase in sales of two departments: Accessories (refer to Q2 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 deorease (hint: remember that variable costs will also change when sales change). Increase in Accessories Sales Decrease in Mountain Bikes Sales 672 Vhat 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 vill also change. Thus. contribution margin should be used in your calculations for the ------------ Increase in BMX Segment Margin - Inorease 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? Vh or wh 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 fized 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. 1 32Suggested selling price 382.00 6 Required investment in assets 201.000 54 Minimum return on investment 162a 55 56 Calculate the following: Unit product cost (costs incurred to get the bike Stready for sale Total selling & administrative costs (costs that 58 help sell the bike or run the business as a whole 59 Selling 8 administrative cost per bike 60 Desired return on investment per bike 61 Markup percentage using absorption costing 62 Suggested selling price using absorption costing 63 63 Is the suggested selling price (noted in part A) sufficient to earn the required return expected by the ovners? Are there any other considerations management should take into account before adding 67 the product line