The Wilmont Bicycle Company ma

The Wilmont Bicycle Company manufactures a line of traditional multispeed road bicycles. Management is considering a new business proposal to produce a line of off-road mountain bikes. The proposal has been studied carefully and the following information is forecast.

Cost of new production equipment and machinery including

freight and setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000

Expense of hiring and training new employees . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000

Pre–start-up advertising and other miscellaneous expenses . . . . . . . . . . . . . . . 20,000

Additional selling and administrative expense per year after start-up . . . . . . . . 120,000

Unit sales forecast

Year 1 . . . . . . . . . . . . . . . . . . . . . . 200

Year 2 . . . . . . . . . . . . . . . . . . . . . 600

Year 3 . . . . . . . . . . . . . . . . . . . . . 1,200

Year 4 and beyond . . . . . . . . . . . 1,500

Unit price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600

Unit cost to manufacture (60% of revenue) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

Last year, anticipating an interest in off-road bicycles, the company bought the rights to a new gearshift design for $50,000. Wilmont’s production facilities are currently being utilized to capacity, so a new shop has to be acquired for incremental production. The company owns a lot near the present facility on which a new building can be constructed for $60,000. The land was purchased 10 years ago for $30,700, and now has an estimated market value of $150,000. If Wilmont produces off-road bicycles, it expects to lose some of its current sales to the new product. Three percent of the new unit forecast is expected to come out of sales that would have been made in the old line. Prices and direct costs are about the same in the old line as in the new.

Wilmont’s general overhead includes personnel, finance, and executive functions, and runs about 5% of revenue. Small one-time increments in business don’t affect overhead spending, but a major continuing increase in volume would require additional support. Management estimates that additional spending in overhead areas will amount to about 2% of the new project’s revenues. New revenues are expected to be collected in 30 days.

                                Incremental inventories are estimated at $12,000 at start-up and for the first year. After that an inventory turnover of 12 times based on cost of sales is expected. Incremental payables are estimated to be 25% of inventories.

Wilmont’s current business is profitable, so losses in the new line will result in tax credits. The company’s marginal tax rate is 34%.

Place this order or similar order and get an amazing discount. USE Discount code “GET20” for 20% discount

Posted in Uncategorized