Question 1: Product line Analysis (18 marks) The owners of Mountain Sports ud are currently reviewing a proposal to adopta new product line-BMX Bikes. This new product line will be compatible with the existing product line, Mountain Bikes and open a new target market, younger customers. It is anticipated that the BMX line be introduced next spring Required Part A Prepare a budgeted CVP Income statement (for a one year period) to determine the segment margin for the new BMX Bikes product line. (7 marks) Management has estimated the following for the BMX Bike product line: Expected sales 1.200 bikes Selling price S 375.00 per bike Expenses Advertising $ 6,000 annually Assembly s 60.00 per bike Cost of Goods Sold S 130.00 per bike Salaries S 4.000 per month Sales commissions 10% of sales The company will need to hire one sales clerk for the BMX line. This sales clerk will BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL Per Bike Percentage Number of Bikes 1,200 Sales Revenue Less: Variable Costs (must be listed alphabetical Total Variable costs Total Variable costs Sales commissions 10% of sales The company will need to hire one sales clerk for the BMX line. This sales clerk will only work for five months of the year (May to September) Less Fed Costs must be listed alphabetical Sales clerk will work for S months Total Fixed Costs MX SEGMENT MARGIN Part B: 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. If you have ANY technical issues during the exam you must contact IT support immediately - 780-471-8624. Please message me in Teams indicating you are having issues If you wait until the end of the exam, nothing can be done! $ 200.000 Required investment in assets Minimum return on investment 20% 4 Calculate the following: 5 Unit variable cost Fixed cost per bike 5 Desired return on investment per bike (in dollars) 7 Markup percentage using variable costing 3 Suggested Selling price using variable costing 1 Is the selling price noted in part A, sufficient to earn the minimum required return expected by A B Is the selling price noted in part A, sufficient to earn the minimum required return expected by the owners? (Yes or No) + Why or why not? Part C: Target Costing (3 marks) Suppose management has determined that the maximum selling price that the market is willing to pay is $350. Assume management wants to earn a 15% return on investment. Part C: Target Costing (3 marks) Suppose management has determined that the maximum selling price that the market is willing to pay is $350. Assume management wants to earn a 15% return on investment. Maximum selling price $ 350.00 Target Cost per Bike (1 mark) What advice would you give to management to help them achieve the target cost you calculated above? (2 marks)