gec Row D elete Row CLICK HERE TO SAVE YOUR WORK The owners of Mountain Sports Ltd. are currently reviewing a proposal to adopt a new product line - BMX Bikes. This new product line will be compatible with their existing product line, Mountain Bikes and open a new target market, younger customers. It is anticipated that the BMX line be introduced next spring. 4 Management has estimated the following for the BMX Bike product line: 5 Expected sales 500 bikes Selling price S 250.00 per bike Expenses: Advertising $ 4,000 annually Assembly $ 50.00 per bike Cost of Goods Sold $ 100.00 per bike Rent 4% of sales Salaries $ 1,500 per month ales commissions 10% of sales e company will need to hire one sales clerk for the BMX line. This sales clerk will only work for five months ar (May to September). Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 Bu The company will need to hire one sales clerk for the BMX line. This sales clerk will only work for five months of the 16 year (May to September). Required: Part A Prepare a budgeted CVP income statement (for a one year period) to determine the segment margin for the 18 new BMX Bikes product line. (8 marks) BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Percentage Number of Bikes 500 Sales Revenue Less: Variable Costs (must be listed alphabetically and use exact spelling as question data) | Cover Sheet Q1 Product Line Analysis 02 Performance Measurement Q3 BUI I Merge Cell - Sinert Row D eleteRow CUCK HERE TO SAVE YOUR WORK BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Percentage Perce Number of Bikes 500 Sales Revenue Less: Variable Costs (must be listed alphabetically and use exact spelling as question data) 19 Total Variable Costs Cover Sheet Q1 Product Line Analysis 02 Performance Measurement Q3 BUT Pon t o Wrap Text Insert Column CLICK HERE TO SAVE YOUR WORK 37 Part B: CVP Analysis (8 marks) * Calculate and explain the following (make sure you use the number you calculated in your explanation): Calculation Explanation 40 Break-even point in Units 41 Margin of Safety as a Percentage 42 " Is it better to have a high or low margin of safety percentage? Which is riskier for the company? N | Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 Bul 7 xcut Tone Name Font Size 2 Testop Wrap Text Insert Column o insert Row D elete com 2. Delete Row 1 Merge Cel s CLICK HERE TO SAVE YOUR WORK Part C: Pricing (8 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. 46 47 Required investment in assets 48 Minimum return on investment $ 160,000 50 Calculate the following: 51 Unit variable cost 52 Fixed cost per bike 53 Desired return on investment per bike in dollars) 4 Markup percentage using variable costing 5 Selling price using variable costing Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 BUI Merge C - 5 mert Row D eleteRow Remove Core CLICK HERE TO SAVE YOUR WORK 52 is the selling price of $250 (noted in part A) sufficient to earn the minimum required return expected by the owners? (Yes or No) 60 Why or why not? 63 Part D: Target Costing (4 marks) Suppose management has determined that the maximum selling price that the market is willing to pay is $250. If 64 management wants to earn a 15% return on investment, what is the target cost? Target Cost per Bike (2 marks) What advice would you give to management to help them achieve the target cost you calculated above? (2 marks) Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 Bu gec Row D elete Row CLICK HERE TO SAVE YOUR WORK The owners of Mountain Sports Ltd. are currently reviewing a proposal to adopt a new product line - BMX Bikes. This new product line will be compatible with their existing product line, Mountain Bikes and open a new target market, younger customers. It is anticipated that the BMX line be introduced next spring. 4 Management has estimated the following for the BMX Bike product line: 5 Expected sales 500 bikes Selling price S 250.00 per bike Expenses: Advertising $ 4,000 annually Assembly $ 50.00 per bike Cost of Goods Sold $ 100.00 per bike Rent 4% of sales Salaries $ 1,500 per month ales commissions 10% of sales e company will need to hire one sales clerk for the BMX line. This sales clerk will only work for five months ar (May to September). Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 Bu The company will need to hire one sales clerk for the BMX line. This sales clerk will only work for five months of the 16 year (May to September). Required: Part A Prepare a budgeted CVP income statement (for a one year period) to determine the segment margin for the 18 new BMX Bikes product line. (8 marks) BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Percentage Number of Bikes 500 Sales Revenue Less: Variable Costs (must be listed alphabetically and use exact spelling as question data) | Cover Sheet Q1 Product Line Analysis 02 Performance Measurement Q3 BUI I Merge Cell - Sinert Row D eleteRow CUCK HERE TO SAVE YOUR WORK BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Percentage Perce Number of Bikes 500 Sales Revenue Less: Variable Costs (must be listed alphabetically and use exact spelling as question data) 19 Total Variable Costs Cover Sheet Q1 Product Line Analysis 02 Performance Measurement Q3 BUT Pon t o Wrap Text Insert Column CLICK HERE TO SAVE YOUR WORK 37 Part B: CVP Analysis (8 marks) * Calculate and explain the following (make sure you use the number you calculated in your explanation): Calculation Explanation 40 Break-even point in Units 41 Margin of Safety as a Percentage 42 " Is it better to have a high or low margin of safety percentage? Which is riskier for the company? N | Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 Bul 7 xcut Tone Name Font Size 2 Testop Wrap Text Insert Column o insert Row D elete com 2. Delete Row 1 Merge Cel s CLICK HERE TO SAVE YOUR WORK Part C: Pricing (8 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. 46 47 Required investment in assets 48 Minimum return on investment $ 160,000 50 Calculate the following: 51 Unit variable cost 52 Fixed cost per bike 53 Desired return on investment per bike in dollars) 4 Markup percentage using variable costing 5 Selling price using variable costing Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 BUI Merge C - 5 mert Row D eleteRow Remove Core CLICK HERE TO SAVE YOUR WORK 52 is the selling price of $250 (noted in part A) sufficient to earn the minimum required return expected by the owners? (Yes or No) 60 Why or why not? 63 Part D: Target Costing (4 marks) Suppose management has determined that the maximum selling price that the market is willing to pay is $250. If 64 management wants to earn a 15% return on investment, what is the target cost? Target Cost per Bike (2 marks) What advice would you give to management to help them achieve the target cost you calculated above? (2 marks) Cover Sheet Q1 Product Line Analysis Q2 Performance Measurement Q3 Bu