Check figures - Question 2 TOTAL CONTRIBUTION MARGIN 244,711 36.1% 258,611 33.0% 185.535 49.5% 93,263 80.3% 782,119 40.1% Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) TOTAL Traceable Fixed Costs SEGMENT MARGIN $ 210,711 31.1% $ 219,611 28.0% $ 179,535 47.9% $ 15,263 13.1% $ 625,119 32.0% Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY Advertising Advertising TOTAL Common FIC $ 358,038 OPERATING INCOME 267,081 Less: Interest Expense 10,000 Earnings before taxes 257,081) Less: Income Tax 64,2701 NET INCOME 192,811 Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 Notes Cross Country Ski Packages 677,462 43% Mountain Bikes Accessories 784,341 374,806 46% 30% 361,189 110,643 423,152 264,163 Parts & Service 116,215 18% TOTAL 1,952,824 290,631 386,831 20,628 95,587 783,091 1,169,733 1 2 3 4 Sales Cost of goods sold % Cost of goods sold Gross Profit Operating expenses Advertising Depreciation Property taxes Rent Parts & service expense Salaries & commissions Utilities Total Operating Expenses Operating income (loss) Interest expense Income (Loss) before taxes Income tax Net Income (Loss) 5 6 7 38,163 5,245 9,503 18,764 33,726 136,042 25,011 266,454 120,376 2,500 117,876 22,296 $95,580 43,820 5,245 9,503 18,764 39,047 136,042 25,011 277,432 145,720 2,500 143,220 25,814 $117,406 8,303 5,245 9,503 18,764 18,659 136,042 25,011 221,528 42,636 2,500 40,136 12,335 $27,800 8,714 5,245 9,503 18,764 0 70,000 25,011 137,238 -41,651 2,500 -44,151 3,825 -$47,976 99,000 20,981 38,013 75,056 91,432 478,125 100,044 902,652 267,081 10,000 257,081 64,270 $192,811 8 25.00% 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 34,000 $ 39,000 $ 6,000 $ 8,000 $ 12,000 $ 99,000 $ 2. The company uses the straight-line method of depreciation. 3. The property taxes are set by the City and do not change with changes in sales volume. 3,000 4. Rent has two components: Monthly amount Percentage based on each department's sales 2% 5. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts & servic 6. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service departmen 14% $ 68,000 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 total yearly salary. They are responsible for all of the departments. These managers will continue to work even if any of the divisions are closed. The Parts & Service Employees only work in that department. If this department were closed, the technicians would be laid off. The total salary for the technicians is $ 83,000 $ 70,000 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 8. Interest expense is charged on the outstanding bank loans. The total interest e $ 10,000 The percentage column should be taken as a percentage of sales (for example, cost of goods sold % for mountain bikes should be taken as a % of mountain bike sales) There may be small rounding differences where total amounts are off by $1, that is ok! Make sure you are using full Excel functionality and entering formulas into each cell. You cannot use your calculator and input the final answer. Note from Kelly, Junior accountant. The sales and cost of goods sold information is correct so I slotted it in (the owners confirmed that these were correct). As for the rest...that's up to you 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 Packages Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent SALES 677,462 100% 784,341 100.0% 374,806 100.0% 116,215 100.0% 1,952,824 100.0% Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) Cost of Goods Sold 290,631 42.9% 361,189 46.1% 110,643 29.5% 20,628 17.8% 783,091 40.1% Note from Instructor: TOTAL Any figures provided in the statement are check figures. If you do not arrive at these numbers, please revisit and discuss with your group members. It is your group's responsibility to ensure that the check figures match the original check figures nrovided A B D E F G H J K L 73 Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) prov 74 75 76 TOTAL Traceable Fixed Costs 77 78 Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY) 79 80 81 82 83 84 85 86 87 88 89 2 Part 2b: Analysis (16 marks) 2. Which product line does the best job of turning sales into 3 profits? (hint: see "SEG" questions in chapter 7 workbook) 5 3. Management has been trying to decide if any departments should be closed. Based on the segmented 6 income statement you prepared, what are your recommendations to management? Which (if any) 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. 7% Decrease in cross country skis and 9 mountain bikes 00 1 Show all amounts as positive numbers: 2 Contribution Margin Lost: 03 Parts & Service Department 04 Cross Country Skis Mountain Bikes 05 Total CM Lost 06 Fixed Costs Avoided 7 Increase (decrease) in income 08 09 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) 1 2 3 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. (5 marks) 4 5 7 3 1 2 3 4 5 Check figures - Question 2 TOTAL CONTRIBUTION MARGIN 244,711 36.1% 258,611 33.0% 185.535 49.5% 93,263 80.3% 782,119 40.1% Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) TOTAL Traceable Fixed Costs SEGMENT MARGIN $ 210,711 31.1% $ 219,611 28.0% $ 179,535 47.9% $ 15,263 13.1% $ 625,119 32.0% Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY Advertising Advertising TOTAL Common FIC $ 358,038 OPERATING INCOME 267,081 Less: Interest Expense 10,000 Earnings before taxes 257,081) Less: Income Tax 64,2701 NET INCOME 192,811 Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 Notes Cross Country Ski Packages 677,462 43% Mountain Bikes Accessories 784,341 374,806 46% 30% 361,189 110,643 423,152 264,163 Parts & Service 116,215 18% TOTAL 1,952,824 290,631 386,831 20,628 95,587 783,091 1,169,733 1 2 3 4 Sales Cost of goods sold % Cost of goods sold Gross Profit Operating expenses Advertising Depreciation Property taxes Rent Parts & service expense Salaries & commissions Utilities Total Operating Expenses Operating income (loss) Interest expense Income (Loss) before taxes Income tax Net Income (Loss) 5 6 7 38,163 5,245 9,503 18,764 33,726 136,042 25,011 266,454 120,376 2,500 117,876 22,296 $95,580 43,820 5,245 9,503 18,764 39,047 136,042 25,011 277,432 145,720 2,500 143,220 25,814 $117,406 8,303 5,245 9,503 18,764 18,659 136,042 25,011 221,528 42,636 2,500 40,136 12,335 $27,800 8,714 5,245 9,503 18,764 0 70,000 25,011 137,238 -41,651 2,500 -44,151 3,825 -$47,976 99,000 20,981 38,013 75,056 91,432 478,125 100,044 902,652 267,081 10,000 257,081 64,270 $192,811 8 25.00% 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 34,000 $ 39,000 $ 6,000 $ 8,000 $ 12,000 $ 99,000 $ 2. The company uses the straight-line method of depreciation. 3. The property taxes are set by the City and do not change with changes in sales volume. 3,000 4. Rent has two components: Monthly amount Percentage based on each department's sales 2% 5. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts & servic 6. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service departmen 14% $ 68,000 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 total yearly salary. They are responsible for all of the departments. These managers will continue to work even if any of the divisions are closed. The Parts & Service Employees only work in that department. If this department were closed, the technicians would be laid off. The total salary for the technicians is $ 83,000 $ 70,000 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 8. Interest expense is charged on the outstanding bank loans. The total interest e $ 10,000 The percentage column should be taken as a percentage of sales (for example, cost of goods sold % for mountain bikes should be taken as a % of mountain bike sales) There may be small rounding differences where total amounts are off by $1, that is ok! Make sure you are using full Excel functionality and entering formulas into each cell. You cannot use your calculator and input the final answer. Note from Kelly, Junior accountant. The sales and cost of goods sold information is correct so I slotted it in (the owners confirmed that these were correct). As for the rest...that's up to you 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 Packages Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent SALES 677,462 100% 784,341 100.0% 374,806 100.0% 116,215 100.0% 1,952,824 100.0% Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) Cost of Goods Sold 290,631 42.9% 361,189 46.1% 110,643 29.5% 20,628 17.8% 783,091 40.1% Note from Instructor: TOTAL Any figures provided in the statement are check figures. If you do not arrive at these numbers, please revisit and discuss with your group members. It is your group's responsibility to ensure that the check figures match the original check figures nrovided A B D E F G H J K L 73 Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) prov 74 75 76 TOTAL Traceable Fixed Costs 77 78 Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY) 79 80 81 82 83 84 85 86 87 88 89 2 Part 2b: Analysis (16 marks) 2. Which product line does the best job of turning sales into 3 profits? (hint: see "SEG" questions in chapter 7 workbook) 5 3. Management has been trying to decide if any departments should be closed. Based on the segmented 6 income statement you prepared, what are your recommendations to management? Which (if any) 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. 7% Decrease in cross country skis and 9 mountain bikes 00 1 Show all amounts as positive numbers: 2 Contribution Margin Lost: 03 Parts & Service Department 04 Cross Country Skis Mountain Bikes 05 Total CM Lost 06 Fixed Costs Avoided 7 Increase (decrease) in income 08 09 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) 1 2 3 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. (5 marks) 4 5 7 3 1 2 3 4 5