ADDITIONAL DATA FROM QUESTION 4:

NEED TO ANSWER JUST A PART B, PLEASE

+ THIS QUESTION PLEASE

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 The investment in assets (cash, inventory, equipment) required for the new location $ 205,000 Minimum required return on investments 13% Actual 2019 return on investment of the original location 20% Management has provided the following income statement to the bank manager the expected net Static Budget Amount Sales in Units 4,136 Sales 517,000 100% Less: Variable costs: Cost of Goods Sold 218,000 42% Sales Commissions 62,040 12% Total Variable Costs 280,040 54% Contribution Margin 236,960 46% Less: Fixed Costs: Advertising 21,000 Property Taxes 10,000 Rent 44,000 Salaries & Wages Total Fixed Costs Net Operating Income 108,000 183,000 53.960 Part A: (4 marks) Calculate the following performance measurements for the proposed Canmore expansion: Margin (see Chapter 11 notes) 10% Turnover (use investment in assets in equation) 2.5 Return on Investment 26% Residual Income UH $ 27,310 Assume that owners decided to go ahead with the Canmore expansion (first introduced in question 4). The junior accountant has prepared the following report to compare the static budget (from question 4) to the actual results. The owners have asked you to complete a variance analysis. Required: Part A (4 marks)- Create a Static Budget Report Variance Analysis, indicating whether variances are favorable (F) or unfavorable (U). All variance amounts should be shown as positive numbers. Static Budget Amount Actual Results Variance Amount Favorable or Unfavorable Sales in Units 4,136 4,610 $ 517,000 $ 553,200 218,000 217,000 Sales Less: Variable costs: Cost of Goods Sold Sales Commissions Total Variable costs Contribution Margin Less: Fixed Costs: 77,448 62,040 280,040 236,960 294,448 258,752 190,000 Total Fixed Costs Net Operating Income 183,000 53,960 68,752 What is the weakness of using a static budget report to evaluate performance? (2 marks) Required: Part B (6 marks) - The owners can see that the company sold a different amount of units than budgeted. They have asked you to create a flexible budget report. Flexible Budget Amount Actual Results Variance Amount Favorable (F) or Unfavorable (U) 4,610 553,200 217,000 Sales in Units Sales Less: Variable costs: Cost of Goods Sold Sales Commissions Total Variable Costs Contribution Margin Less: Fixed Costs 77,448 294,448 258,752 190.000 Net Operating Income 68,752 Management was pleased on the results based on the static budget report. Should they be pleased? What does the flexible budget tell you? What are your recommendations to management based on the flexible budget report