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G Question 2 - Segmented income Statement Product line Analysis (41 marts Mountain sports carries a limited line of protects and services that can be divided into four de 1. Crow country packages (ka, boots and polity 2. Mountain bike 3. Accessories 4. Parts and service The ownen of the company have been pleased with the operating income to date as shown in the companiei commention. However, they want to better idea of how each of its four departments are doing. The junior countant, Kely thought sented income would provide the Wormation the war looking for, however, Kelly has never prepared a semented income statement. While Kelly tried to create the segmented the youtwit and make changes necessary. Additional notes have been provided to the income statement so that you may their accountant's statement is correct uit to you to provide a corrected cemented income statement and provide recommendation to the owner A note from the junior accountant Kelly: marshmal han A note from the junior accountant, Kelly Hi again! I have to admit I don't have much experience with segmented income statements. Our manager Sarah, was trying to tell me about common and traceable fixed costs. I didn't understand it, so I just ignored it (keep that between us !). I gave it my best shot but I'm really hoping you be able to help me. Here's some of the information and assumptions / used when creating this segmented income statement 1. The sales and cost of goods sold information was taken directly from each department. My manager checked this over and it was correct! You can use this Information when you re-state the segmented income statement below. Oh, the parts & service expense is also correct! 2. I just allocated a lot of the expenses equally to the product lines, I wasn't exactly sure what to do. You can see which ones i allocated equally below which include depreciation, property taxes, rent and utilities. There's some notes to the gremented income statement below which I think should help you determine how to properly do it...or maybe I did do it properly (hmmm, I'm not sure)? My manager said all of these expenses will stay the same even if any one of the product lines were eliminated. In other words, the company would continue to incur all these costs regardless of which product lines are offered 3. There's a lot of information in the notes regarding salaries and commissions. The parts and service department is treated a bit differently because those employees dont receive commissions. So I just figured out the total salaries and commissions for the other employees and split it equally between cross country skis, mountain bikes and accessories. However, my manager said that these employees will continue to work at the company no matter what they sell all the products in the store). Does that matter? 4. There was some advertising that was spent specifically on each department and then some that was for the company as a whole just kind of gorced how to put this into the statement. Maybe this has something to do with the common traceable expense thing? This is so hard Mela! have a feeling that my statement correct since naved the whole common traceable de prenses thing and allocated things equally across some product Anes. Can you help me create the segmented income statement properly Mountain Sportsud Segmented Income Statement For the Year Ended Dec 31, 2019 Note from Kelly, kunior accountant Parts & Notes Cross Country Ski Packages 655.072 42 273820 Mountain Bikes Accessories 783,567 296,144 4X 25 374,310 74 658 TOTAL 1.862.901 Service 128,118 14% 18026 This is my first attempt at the segmented income statement. I think it's safe to say that I need help! Sales Cost of goods sold Cost of foods sold 740,814 4 02 03 04 05 06 B Segmented Income statement For the Year Ended Dec 31, 2019 9 Note from Kelly, Junior accountant Notes Cross Country Ski Packages 655,072 42% 273,820 381 252 TOTAL 1,862,901 Mountain Parts & Bikes Accessories Service 783,567 296,144 128 118 48% 25% 14% 374,310 7465818 026 409 257 221,486 110,092 This is my first attempt at the segme statement. I think it's safe to say thu help! 740,814 1.122.087 10 11 Sales 12 Cost of goods sold % 13 Cost of goods sold 14 Gross Profit 15 Operating expenses 16 Advertising 17 Depreciation 18 Property taxes 19 Rent 30 Parts & service expense 1 Salaries & commissions 2 Utilities 1 97,000 22,360 2 37,916 3 34,220 5,590 9,479 21,315 35,627 110,609 25,378 46,047 5,590 9,479 21,315 42,616 110,609 25.378 8,908 5,590 9,479 21,315 16,106 110,609 25,378 4 7,825 5,590 9.479 21,315 0 74,000 25.378 5 85,258 94 349 405,826 101.510 6 7 F73 Ix A B D E F G H 22 Utilities 7 B C 25,378 25,378 25,378 25,378 101 510 23 Total Operating Expenses 242,217 261,033 197384 143,586 844 219 24 Operating income (loss) 139,035 148,224 24,102 -33,494 277,868 25 Interest expense 1,500 1,500 1,500 1,500 6,000 26 Income (Loss) before taxes 137,535 146,724 22,602 -34,994 271,868 27 Income tax 26.00% 24,856 29,732 11:23 4,861 70 686 20 Net Income (Loss) $112679 $116.993 $11,366 $39,856 $201.182 29 30 Notes to the financial statements: 1. Advertising is committed to at the beginning of the period by management. Management has many different forms of advertising campaigns with different focuses as follows: Cross country ski packages Mountain Accessories Parts & Service Promotes TOTAL Bikes company as a whole $ 30,000 S 41,000 $ 7,000 $ 7,000 $ 12,000 $ 97 000 2. The comnanunce the straight line method of donroristinn 52. The company uses the straight-line method of depreciation 5 73. The property taxes are set by the City and do not change with changes in sales volume. 4. Rent has two components 3 Monthly amount 4.000 Percentage based on each department's sales 29 S. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts & service expense for the parts & service department. 6. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service department emplovees do not earn sales commissions on their sales 11% Sales commissions Total yearly salary of employees that sell skis, bikes, and accessories. These employees will continue to work for the company regardless of which product lines are offered, The store managers are paid a totalvearly salary. They are responsible for all of $ 60,000 09 The store managers are paid a total yearly salary. They are responsible for all of the department. These managers will continue to work even if any of the divisions are closed, 5 B1,000 The Parts & Service Employees only work in that department of this department were closed, the technicians would be laid off. The total salary for the technicians is $ 74,000 50 51 53 55 52 7. Utilities are the same regardless of activity and will not change even if a product line is dropped 54 8. Interest expense is charted on the outstanding bank loans. The total interest 6000 9. Income taxes are calculated for the company as a whole. The company will have to pay taxes regardless of which product lines it offers 57 Required: Part A: (25 marks) 1) Restate the segmented income statement using the statement the junior accountant prepared and the notes to the financial statements (Chapter 7 Appendix) 56 Required: Part A: (25 marks) 1) Restate the segmented income statement using the statement the junior accountant prepared and the notes to the financial statements (Chapter 7 Append) Check figures have been provided to ensure you are on the right track. If you are not arriving at the check figures, please discuss with your proup members to determine where you went wrong! See the word document provided to your group containing the check figures Notes The percentage column should be taken as a percentage of sales floresample, cost of goods sold for mountain bikes should be taken of mountain bike sale There may be small rounding differences where total amounts are off by $1. that cokl Make sure you are using filxcel functionality and entering formulas into eachel You cannot use your calculator and input the final answer Mountain Sports Ltd Segmented income Statement By Product Line For the Year Ended December 31, 2019 Mountain Bikes Accessories Amount Percent Amount Percent Cross Country Ski Packaged Percent Parts and Service Department Amount Percent TOTAL Amount Percent Net Thes Amount B D H Mountain Sports Ltd Segmented income Statement Product Line For the Year Ended December 31, 2019 Mountain Bikes Accessories Amount Percent Amount Percent Cross Country Skicka Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent None from Kenya The sales and FECT confirmed that SALES 655022 100N 281,567 100.00 29.144 100.ON 1281111 100.0 102.001 100. Lese: Variable Coits MUST BE LISTED ALPHABETICALLY Cost of Goods Sold 273,820 41.8 374 110 47.8 2465 25.2% 18,020 14. 740,814 19.AN Note from No 70 Am che THI 1 TOTAL TE fes 072 pri Less Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) 5. TOTAL Traceable Fixed Costs 78 Less Common Fund Costs MUST BE LISTED ALPHABETICALLY 82 + 84 85 16 Part 2b: Analysis (16 marks) 2. Which product line does the best job of turning sales into profits? (hint: see "SEG" questions in chapter 7 workbook) 92 Part 2b: Analysis (16 marks) 2. Which product line does the best job of turning sales into 93 profits? (hint: see "SEG" questions in chapter 7 workbook) 95 3. Management has been trying to decide if any departments should be closed. Based on the segmented income statement you prepared, what are your recommendations to management? Which 26 (if any) department should be closed? 7 4. Management had been considering closing the Parts & Service Department based on the segmented income statement that the junior accountant prepared. If this segment were closed, management estimates that sales for both Cross Country Skis and Mountain Bikes will decrease (see percentage below). Calculate the overall decrease in income to the company as a whole if the parts & service department is closed. 8% Decrease in cross country skis and 99 mountain bikes 100 101 Show all amounts as positive numbers: 102 Contribution Margin Lost: Parts & Service Department 103 Cross Country Skis 104 Mountain Bikes 105 Total CM Lost 106 Fixed Costs Avoided + 107 Increase (decrease) in income 108 109 5. Based on both quantitative and qualitative analysis, should the Parts & Service Department be closed? Explain to mantinha dand OMR for the innen 5. Based on both quantitative and qualitative analysis, should the Parts & Service Department be closed? Explain to management in a way that they can understand. Be sure to use your answer from the previous part in your response. Do not give textbook answers, use question datal (2 marks) 10 11 2 13 6.Please write a brief memo to the junior accountant explaining the changes you made to the segmented income statement. Textbook definitions will not be awarded marks. Please use question data and your own words. Even though the junior accountant has some accounting background, the owners do not. As such, please ensure you write explanations in a way that both the junior accountant and the owners can understand