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.

Express Osprey MTB MTB Flatbar Sport Disc Sport Sales Price 5500 5600 5370 5300 Variable cost - manufacturing 260 280 175 140 selling & admin. 90 120 75 62