Question
Reid Cycles is founded by James Reid that began operations in 2009; with the sole intention of providing Australia's best value bikes. The firm does
Reid Cycles is founded by James Reid that began operations in 2009; with the sole intention of
providing Australia's best value bikes. The firm does this by cutting out the middle men
and selling high quality bikes direct to the public. Designed by Australians for
Australians; Reid creates trends by combining fashion, function and quality. From
humble beginnings in 2009, selling Reid bikes from the garage of James Reid, the firm
now has an online web-store and retail stores in 5 major cities in Australia. In 2013, the
firm sold its first bike internationally to its Switzerland distributor. To this day Reid
bikes are ridden by over 400,000 Australians. Today, Reid bikes are available in more
than 20 countries around the world. Bicycle sales have drastically increased during the
COVID-19 pandemic period as lock-down measures were put in place and many
workplaces moved to online and others shut down. Staying and working from home has
motivated people to engage in daily exercise either by walking or cycling. Given the
opportunity, Reid has considered various options to expand its market share. The
proposal to open a new store in Werribee is part of this expansion plan. The project
indicates that the initial phase will focus on securing a store, hiring retail workers and
start by introducing two types of bicycles: Road Bikes (Express and Osprey Flatbar) and
Mountain Bikes (MTB Sport Disc and MTB Sport). Reid has a plan to open the store in
January 2021.
The proposed budgeted sales volume for 2021 includes 320 Express bikes, 400 Osprey
Flatbar bikes, 380 MTB Sport Disc bikes and 500 MTB Sport bikes. Budgeted annual
fixed manufacturing costs are $109,005 and fixed selling and administrative costs are
$58,695. The income tax rate applicable for the business is 30 per cent. Additional
budgeted per unit data for the four types of bicycles is presented below. please check.
Required:
answer the following questions, to help find comprehensive solution. (Treat each
requirement independently and show details of your computations and explain the results).
1. Prepare contribution approach income statement for Reid cycles-Werribee Store and
determine the total budgeted net profit for the year 2021.
2. How many bicycles of each type must be sold during 2021 in order to break-even;
assuming sales mix remains constant.
3. Answer the following questions for Reid cycles-Werribee Store and interpret the
results:
a. Calculate the projected safety margin in units for the year 2021 and explain the
importance of this information for Reid cycles-Werribee Store.
b. If the rate of community transmission and the rate of infections from COVID-19 are
put under control, then business may re-open fully and people may go to their work
place. Thus demand for bicycles might fall by 10% during 2021 and Reid cycles Werribee Store may
not achieve its budgeted sales target for the year. Assuming sales price of each bicycle remains the
same; re-compute safety margin for each bicycle and assess the riskiness of each product line for the
year 2021 and interpret the results of your computations.
and also answer the following questions.
conduct analysis on the basis of the following changes. Reid cycles-Werribee Store expects that
salary of store managers as well as rental contract of its premises would be expected to increase by
mid-2021 by a total amount of $30,000. This situation will directly affect fixed costs of the store. It is
expected that budgeted sales volume will decline by 10%, but selling price per bicycle and all variable costs will remain the same during 2021.
a. Taking into accounting the decline in projected sales volume and increase in fixed
costs, determine how many bicycles of each type should Reid cycles-Werribee Store
produce and sell in order to breakeven in the year 2021.
b. Assume that Reid cycles-Werribee Store has the possibility of producing and selling a
total of 14,000 bicycles and that the maximum demand for each type of bicycle could
reach 4,000 for 2021. How should Reid cycles-Werribee Store adjust its budgeted sales
quantity per bicycle for 2021 in order to achieve maximum profit by changing its sales
mix? Provide adequate explanation for your answer. (Hint: you are expected to come
up with proposed sales mix for each product along with your answer.) If demand of
bicycles is expected to fall by 10% from 14,000 in 2022; what do you advise the
management of Reid Cycles to consider for the operations of Reid cycles-Werribee
Store beyond 2021? Explain the reason behind your advice.
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