The president feels very strongly that Mountain Sports should expand operations to a second location. She has
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The president feels very strongly that Mountain Sports should expand operations to a second location. She has even found a prime location in Canmore, Alberta, One of the great things about Canmore is its proximity to the mountains, and its only about 10 minutes away from this beautiful, vibrant and internationally known Banff tourist town. Research indicates that the Canmore market is well suited to both cross-country skis and bikes that competition is fairly limited. The investment in assets (cash, inventory, equipment) required for the new $ 179,000 Minimum required return on investments 167 Actual 2019 return on investment of the original location 17% 3 5 5 3 Management has provided the following income statement to the bank manager the Static Budget % Amount Sales in Units 4,112 - Sales 514,000 100% Less: Variable Costs: Cost of Goods Sold 225,000 44% Sales Commissions 77.100 15% Total Variable Costs 302.100 59%. Contribution Margin 211.900 417 Less: Fixed Costs: Advertising 23,000 Property Taxes 9,000 1 Rent 53,000 Salaries & Wages 110.000 Total Fixed Costs 195.000 Net Operating Income 16.900 Calculate the following performance measurements for the proposed Canmore expansion: Margin (see Chapter 11 notes) Turnover (use investment in assets in equation) Return on Investment Residual Income Part B: Analysis (4 marks) Explain in your own words using case data. Marks will not be awarded for textbook de a. If management is evaluated based on ROI, will the project be accepted expansion into Canmore)? Why or why not? b. If management is evaluated based on residual income, will the expansion into Canmore be accepted? Why or why not
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