Reference no: EM132638956

Question - 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.

Express Osprey Flatbar MTB Sport Disc MTB Sport

Sales Price $500 $600 $370 $300

Variable cost - manufacturing 260 280 175 140

Selling & admin 90 120 75 62

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 breakeven; assuming sales mix remains constant

3. Answer the following questions for Reid cycles-Werribee Store and interpret the results:

4. 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.

Mr. Kahlil David has asked that each person conducts 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.

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.