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Question 4-Performance Measurement (10 marks) The president feels very strongly that Mountain Sports should expand operations to a second location. She has even found a prime location in Canmore, Alberta, One of the great things about Canmore is its proximity to the mountains, and its only about 10 minutes away from this beautiful, vibrant and internationally known Banff tourist town. Research indicates that the Canmore market is well suited to both cross-country skis and bikes that competition is fairly limited. $ 206,000 The investment in assets (cash, inventory, equipment) required for the new location is 18% Minimum required return on investments 24% Actual 2019 return on investment of the original location Management has provided the following income statement to the bank manager the expected net income in the Static Budget % Amount Sales in Units 4,048 Sales 506,000 100% Less: Variable Costs: Cost of Goods Sold 216,000 43% Sales Commissions 55.660 11% Total Variable Costs 271,660 54% Contribution Margin 234,340 46% Less: Fixed Costs: 21,000 Advertising Property Taxes 9,000 Rent 42,000 Salaries & Wages 108,000 2. Total Fixed Costs 180,000 3 Net Operating Income 54.340 4 5 Part A: (4 marks) Calculate the following performance measurements for the proposed Canmore expansion: 6 Profit Margin 11% O 1 Part A: (4 marks) Calculate the following performance measurements for the proposed Canmore expansion: 11% Profit Margin 26% 9 Return on Investment D 1. 2 Part B:Analysis (6 marks) Explain in your own words using case data. Marks will not be awarded for textbook definitions). a. If management is evaluated based on ROI, will the project be accepted (expansion Into Canmore)? Why or wh 3 not? 34 35 b. What is the major weakness of using return on investment as a performance measure? Is there anything you 36 could recommend to the owners to mitigate this weakness of using ROI as a performance measure