During the COVID-19 lockdown, cycling is considered the most popular new form of exercise in New Zealand.1 Indeed, the New Zealand government is actively promoting cycling due to its several benefits, such as more liveable towns and cities, stronger local councils, reduced costs for councils, and less impact on the environment.2 The physical and mental benefits of cycling are also well-documented. For example, a new study carried out in seven European cities finds that cycling is associated with better self-perceived general health, better mental health, and fewer feelings of loneliness.3 Required:

Imagine that you and three of your friends are considering opening a bicycle shop in a town/city in New Zealand. For the first three years, you are considering selling a single product, which will be locally assembled from imported parts. However, before moving ahead with this venture, you want to determine its feasibility.

Question 1. Identify the fixed, variable, and mixed costs that you are likely to incur during the first year of operations. Describe the assumptions that underlie your answers.