A B 4 5 6 Mountain Sports Ltd. Income Statement For the Year Ended Dec 31, 2019 7 8 9 10 Sales 1,952,824 11 Cost of goods sold 783,091 1,169,733 12 Gross margin 13 Operating expenses: (See notes) 14 Advertising 15 Depreciation 16 Property taxes 17 Rent 18 Parts & service expenses 19 Salaries and commissions 20 Utilities 21 Total operating expenses 22 Operating income 23 Interest expenses 24 Income before taxes 99,000 20,981 38,013 75,056 91,432 478,125 100,044 902,652 267,081 10,000 257,081 64,270 25 Income taxes 26 Net income 192,811 27 Part A: Cost Classification (Chapter 2, 6) (5 marks) Required: Classify each of the below operating expenses as variable or fixed. Cost Variable or Fixed Cost of goods sold increases proportionately with sales Employees are paid fixed monthly salaries supplemented by a commission on all sales except for the Parts & Service department's sales (see note 1 below for sales for each segment). Monthly Salaries To be calculated by the group Commission as a percentage of sales 14% Rent components: Monthly 3,000 Percentage of sales 2% Utilities costs incurred are independent of sales volume (they will not change if sales volume Parts and Service expense varies with sales activity and can be traced to each product line. The company uses straight-line depreciation on all depreciable assets. The property taxes are set by the City and do not change with changes in sales volume. Advertising budgets are committed to at the beginning of each year. Note 1: Sales by Segment (taken from Q2 segmented income statement) Cross Country Ski Packages Mountain Bikes Accessories Parts & Service Sales $ 677,462 $ 784,341 $ 374,806 $ 116,215 F G H E 28 29 ncome Statement (Chapter 6) (13 marks) 30 ntribution margin income statement (below), using the traditional income statement provided and the tion provided in Part A Check figures have been provided to ensure you are on the right track. See the 31 ent provided to your group! 32 33 Mountain Sports Ltd. Note from Instructor: All formulas must be 34 Contribution Margin Income Statement completed within the answer boxes. Do not 35 For the Year Ended Dec 31, 2019 use a calculator and input the final answer. It will result in rounding errors and you will 36 be marked as incorrect. This is applicable 37 TOTAL PERCENT for all calculations in the case study. 38 Sales $1,952,8241 100% 39 Less: Variable Costs (must be listed in alphabetical order): Note from Instructor: You will be marked as incorrect if you do not follow instructions! Please read carefully! 40 41 42 43 44 Total variable costs 45 46 47 Less: Fixed Costs (must be listed in alphabetical order) Advertising 48 TOTAL 49 50 51 52 53 54 55 56 57 58 59 = D E F G H I ] L Calculate the following and explain each calculation (in your own words). Be sure to explain what the number you've calculated means, ensuring you write it in a way so that a non-accountant can understand. For example, if you calculate a breakeven point of $1,000, what does $1,000 mean? Marks will not be awarded for Calculation Explanation 1) Breakeven Point in Sales Dollars Note from Instructor: You may increase the size of the columns, however, do not change the formatting. Do not merge cells in any of the answer boxes. In other questions, you may need to increase the size of the column but again, please do not merge any cells. 2) Margin of Safety (In percent) 3) Degree of Operating Leverage (DOL) (operating income to be used in calculation) 4) The junior accountant left a note for you: In the managerial accounting course that I took, I learned that degree of operating leverage is a measure of risk. I don't really understand that. Can you help me? What does leverage mean? Is it better to have high leverage or low leverage? The owners have asked me if they should focus more on variable costs or fixed costs, what should I say? They expect that sales will increase next year. N/A - no calculations needed A B 4 5 6 Mountain Sports Ltd. Income Statement For the Year Ended Dec 31, 2019 7 8 9 10 Sales 1,952,824 11 Cost of goods sold 783,091 1,169,733 12 Gross margin 13 Operating expenses: (See notes) 14 Advertising 15 Depreciation 16 Property taxes 17 Rent 18 Parts & service expenses 19 Salaries and commissions 20 Utilities 21 Total operating expenses 22 Operating income 23 Interest expenses 24 Income before taxes 99,000 20,981 38,013 75,056 91,432 478,125 100,044 902,652 267,081 10,000 257,081 64,270 25 Income taxes 26 Net income 192,811 27 Part A: Cost Classification (Chapter 2, 6) (5 marks) Required: Classify each of the below operating expenses as variable or fixed. Cost Variable or Fixed Cost of goods sold increases proportionately with sales Employees are paid fixed monthly salaries supplemented by a commission on all sales except for the Parts & Service department's sales (see note 1 below for sales for each segment). Monthly Salaries To be calculated by the group Commission as a percentage of sales 14% Rent components: Monthly 3,000 Percentage of sales 2% Utilities costs incurred are independent of sales volume (they will not change if sales volume Parts and Service expense varies with sales activity and can be traced to each product line. The company uses straight-line depreciation on all depreciable assets. The property taxes are set by the City and do not change with changes in sales volume. Advertising budgets are committed to at the beginning of each year. Note 1: Sales by Segment (taken from Q2 segmented income statement) Cross Country Ski Packages Mountain Bikes Accessories Parts & Service Sales $ 677,462 $ 784,341 $ 374,806 $ 116,215 F G H E 28 29 ncome Statement (Chapter 6) (13 marks) 30 ntribution margin income statement (below), using the traditional income statement provided and the tion provided in Part A Check figures have been provided to ensure you are on the right track. See the 31 ent provided to your group! 32 33 Mountain Sports Ltd. Note from Instructor: All formulas must be 34 Contribution Margin Income Statement completed within the answer boxes. Do not 35 For the Year Ended Dec 31, 2019 use a calculator and input the final answer. It will result in rounding errors and you will 36 be marked as incorrect. This is applicable 37 TOTAL PERCENT for all calculations in the case study. 38 Sales $1,952,8241 100% 39 Less: Variable Costs (must be listed in alphabetical order): Note from Instructor: You will be marked as incorrect if you do not follow instructions! Please read carefully! 40 41 42 43 44 Total variable costs 45 46 47 Less: Fixed Costs (must be listed in alphabetical order) Advertising 48 TOTAL 49 50 51 52 53 54 55 56 57 58 59 = D E F G H I ] L Calculate the following and explain each calculation (in your own words). Be sure to explain what the number you've calculated means, ensuring you write it in a way so that a non-accountant can understand. For example, if you calculate a breakeven point of $1,000, what does $1,000 mean? Marks will not be awarded for Calculation Explanation 1) Breakeven Point in Sales Dollars Note from Instructor: You may increase the size of the columns, however, do not change the formatting. Do not merge cells in any of the answer boxes. In other questions, you may need to increase the size of the column but again, please do not merge any cells. 2) Margin of Safety (In percent) 3) Degree of Operating Leverage (DOL) (operating income to be used in calculation) 4) The junior accountant left a note for you: In the managerial accounting course that I took, I learned that degree of operating leverage is a measure of risk. I don't really understand that. Can you help me? What does leverage mean? Is it better to have high leverage or low leverage? The owners have asked me if they should focus more on variable costs or fixed costs, what should I say? They expect that sales will increase next year. N/A - no calculations needed