Part A Bayside Bicycles is a retail store which sells a large range of bicycles.

Question

Part A Bayside Bicycles is a retail store which sells a large range of bicycles. Consider the following details below- Expected Sales Per Annum Average Selling Pice Per Unit sp Variable Cost Per Unit Fixed Costs Per Annum. Tax Rate 3,000 bicycles C$500 5700,000 VC F.s Required: [1] How many bicycles must be sold to "break-even"? Show all calculations 2] Calculate the Net Profit After Tax based on the expected sales per annum. se profit, the management of Bayside Bicycles is considering selling the bicycles at a discountedynce of $850. By spending an additional cost of $15,000 for advertising,management at this will increase the expected sales to 3,400 bicycles per annum. Calculate the Net Profit After Tax for this strategy be undertaken? Explain your arnsier wim eeto relearal yidions 14] Provide 2 alternative strategies which Bayside Bicycles could use to increase its profitability 1- Identify one disadvantage associated with each strategy [2+3+5+4 =14 marks ] Part B

Explanation / Answer

4)  2 alternative strategies which Bayside Bicycles could use to increase its profitability.

1) Break-even units = Fixed cost / Contribution margin per unit =$700,000/$900-$500 =$700,000/$400 =1750 bicycles 2) Particulars per unit 3000 bicycles Selling price per unit $        900 $      2,700,000 Less: Variable cost per unit $        500 $      1,500,000 Contribution margin per unit $        400 $      1,200,000 Less: Fixed Cost $         700,000 Net profit before tax $         500,000 Less: Tax @30% $         150,000 Net profit after tax $         350,000 3) Particulars per unit 3400 bicycles Selling price per unit $        850 $      2,890,000 Less: Variable cost per unit $        500 $      1,700,000 Contribution margin per unit $        350 $      1,190,000 Less: Fixed Cost ($700,000+$15000) $         715,000 Net profit before tax $         475,000 Less: Tax @30% $         142,500 Net profit after tax $         332,500 This strategy should not be undertaken as it will reduce Net profit after tax from $350,000 to $332,500. So there will be the decrease in after-tax profit of $17,500.

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