50.1K

Verified Solution

Link Copied!

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) $ $ $ 396.00 125.00 56.00 1,202 15% 4,208 $ BER The additional sales clerks required for the BMX line will only work for four months of the year (May to August). BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL SITTEN Per Bike Percentage N IE Number of Bikes 490 PE TER Sales Revenue GELIG HT 100% LCD Less: Variable Costs (must be listed alphabetically) :: GREITILL LATTI Total Variable Costs liess: Fixed Costs (must be listed alohabetically Less: Variable Costs (must be listed alphabetically) Total Variable Costs Less: Fixed Costs (must be listed alphabetically) Total Fixed Cost BMX SEGMENT MARGIN 62,420 This new BMX bike product line will create an increase in sales of two departments: Accessories, and Parts & Service (refer to Q2 segmented income statement for department information). However, due to the floor space required for retailing BMX Bikes, management estimates that sales of Mountain Bikes will decrease (hint: remember that variable costs will also change when sales change). 13 1 Increase in Accessories Sales Increase in Parts & Service Sales Decrease in Mountain Bikes Sales 12% 70% What is the impact to the company's income as a whole if the BMX product line is added (hint: consider the segment margin of the BMX product line, and the impact to the other product lines. Remember that if sales change for a product line, the total variable costs will also change. Thus, contribution margin should be used in your calculations for the other product lines). Increase in BMX Segment Margin I Increase in BMX Segment Margin s 62420 62,420 S 62,420 Increase in BMX Segment Margin * Increase in Contribution Margin- Accessories | WWW Increase in Contribution Margin- Parts & Service Decrease in Contribution Margin- Mountain Bikes (show as negative number) INT WWW NET Increase (Decrease) in Operating Income DECISION: Should the company add the BMX bike product line? Why or why not? Ranurad Dart a. Required investment in assets Minimum return on investment $ 201,000 14% Calculate the following (Chapter 9): Unit product cost (costs incurred to get the bike ready for sale) Total selling & administrative costs 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? Is the suggested selling price (noted in part A) sufficient to earn the required return expected by the owners? What is the projected return on investment (Chapter 11) for the BMX product line (use BMX segment margin as the operating income number) M Based on ROI, should management add the new BMX product line? Why or why not? I Are there any other considerations management should take into account before adding the product line? thefore 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) $ $ $ 396.00 125.00 56.00 1,202 15% 4,208 $ BER The additional sales clerks required for the BMX line will only work for four months of the year (May to August). BMX Product Line Budgeted CVP Income Statement For the year ended December 31, 2020 TOTAL SITTEN Per Bike Percentage N IE Number of Bikes 490 PE TER Sales Revenue GELIG HT 100% LCD Less: Variable Costs (must be listed alphabetically) :: GREITILL LATTI Total Variable Costs liess: Fixed Costs (must be listed alohabetically Less: Variable Costs (must be listed alphabetically) Total Variable Costs Less: Fixed Costs (must be listed alphabetically) Total Fixed Cost BMX SEGMENT MARGIN 62,420 This new BMX bike product line will create an increase in sales of two departments: Accessories, and Parts & Service (refer to Q2 segmented income statement for department information). However, due to the floor space required for retailing BMX Bikes, management estimates that sales of Mountain Bikes will decrease (hint: remember that variable costs will also change when sales change). 13 1 Increase in Accessories Sales Increase in Parts & Service Sales Decrease in Mountain Bikes Sales 12% 70% What is the impact to the company's income as a whole if the BMX product line is added (hint: consider the segment margin of the BMX product line, and the impact to the other product lines. Remember that if sales change for a product line, the total variable costs will also change. Thus, contribution margin should be used in your calculations for the other product lines). Increase in BMX Segment Margin I Increase in BMX Segment Margin s 62420 62,420 S 62,420 Increase in BMX Segment Margin * Increase in Contribution Margin- Accessories | WWW Increase in Contribution Margin- Parts & Service Decrease in Contribution Margin- Mountain Bikes (show as negative number) INT WWW NET Increase (Decrease) in Operating Income DECISION: Should the company add the BMX bike product line? Why or why not? Ranurad Dart a. Required investment in assets Minimum return on investment $ 201,000 14% Calculate the following (Chapter 9): Unit product cost (costs incurred to get the bike ready for sale) Total selling & administrative costs 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? Is the suggested selling price (noted in part A) sufficient to earn the required return expected by the owners? What is the projected return on investment (Chapter 11) for the BMX product line (use BMX segment margin as the operating income number) M Based on ROI, should management add the new BMX product line? Why or why not? I Are there any other considerations management should take into account before adding the product line? thefore adding the product line

Answer & Explanation Solved by verified expert

See Answer