Prepare a CVP income statement for a one year period to determine the segment margin for the new bmx bikes product line.
(pls show work)
G Question 3 - Product line Analysis (29 marks) The owners of Mountain Sports Ltd. are currently reviewing a proposal to adopt a new product line-BMX Bicycles. This new product line will be compatible with the Mountain Bikes and open a new target market, younger customers. It is anticipated that the BMX line be introduced next spring, $ $ Management has estimated the following: Expected sales in bikes Average selling price per bike Purchase cost (COGS) per bike Assembly cost per bike Sales clerks required - seasonal Monthly Salary per Sales Clerk Sales commissions Advertising campaign (annual cost) $ 370 355.00 114.00 63.00 2 1,365 15% 4,721 $ $ $ The additional sales clerks 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 CVP income statement (for a one year period) to determine the segment margin for the new BMX Bikes product line. BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Percentage Number of Bikes 370 Sales Revenue $ 131,350 $ 355.00 100% Less: Variable Costs (must be listed alphabetically) Assembly 23,310 63.00 18% Cost of Goods Sold 42,180 114.00 32% Sales Commissions 19,703 53.25 15% Total Variable Costs 85,193 230.25 65% Contribution Margin Less: Fixed Costs (must be listed alphabetically) Q1 Q2 Q3 Q4 Q5 Q6 Dropdowns + Ready T + 100% Contribution Margin Less: Fixed Costs (must be listed alphabetically) Total Fixed Cost Required Part B (Chapter 6 & 7)(7 marks): 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 decrease (hint: remember that variable costs will also change when sales change). Increase in Accessories Sales Decrease in Mountain Bikes Sales 11% 7% What 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 will also change. Thus, contribution margin should be used in your calculations for the other product lines). Increase in BMX Segment Margin $ Increase 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? Why or why not? Required Part C: Pricing (Chapter 9) (9 marks) Assume management has decided to go ahead with offering the BMX product line. Q1 Q2 Q3 Q4 Ready 17 Q5 Q6 Dropdowns + + 100% 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 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. Suggested selling price Required investment in assets Minimum return on investment $ $ 355.00 207,000 18% Calculate the following: Unit product cost (costs incurred to get the bike ready for sale) Total selling & administrative costs (costs that help sell the bike or run the business as a whole) Selling & administrative cost per bike Desired return on investment per bike Markup percentage using absorption costing Suggested selling price using absorption costing Is the suggested selling price (noted in part A) sufficient to earn the required return expected by the owners? Are there any other considerations management should take into account before adding the product line
