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) 460 $382.00 $ 137.00 $ 63.00 2 $ 1,018 13% 4,785 $ 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. DECISION: Should the company add the BMX bike product line? What qualitative factors should management consider before deciding to implement the BMX product line Required Part C: Pricing (Chapter 9) (12 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 $ 382.00 $ 202,000 Minimum return on investment 19% Required part C: Pricing (Chapter 9 (12 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 $ 382.00 $ 202,000 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? 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) 460 $382.00 $ 137.00 $ 63.00 2 $ 1,018 13% 4,785 $ 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. DECISION: Should the company add the BMX bike product line? What qualitative factors should management consider before deciding to implement the BMX product line Required Part C: Pricing (Chapter 9) (12 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 $ 382.00 $ 202,000 Minimum return on investment 19% Required part C: Pricing (Chapter 9 (12 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 $ 382.00 $ 202,000 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
