CONETXT:

PROVIDE ONE BUDGETED SEGMENTED INCOME STATEMENT FOR THE FOLLOWING SITUATION:

Standup Paddleboarding (SUP) has been growing in popularity over the past five years, and Paddle Perfect Ltd. has benefitted from the trend. The company produces SUP accessories for: a boardbag to shield the boards from UV rays when the board is stored outside, a lightweight aluminum paddle, and leashes worn around the ankle to ensure the paddleboard and rider are not separated. Patty Power, the only shareholder of Paddle Perfect Ltd., has been very conservative in managing the growth of the business. Patty expects the favourable trend for paddleboarding to continue and is considering options to grow the business. In particular, Patty has been attending trade shows over the past year and has become aware of a growing demand for carbon paddles which are lighter and more responsive than the aluminum paddles used by most beginning riders. Patty has scheduled a meeting with her senior managers to discuss options for the business. She has also compiled some key historical financial data regarding volume, sales prices, and production costs of the three products sold to date and carbon paddles that may be sold in the future. Planning was perfect in the prior-year (as is only possible in a case study!) and the assumption is that there is no inventory at the beginning and end of the year. The prior-year data is presented below: Key Historical Data for Paddle Perfect Ltd. Manufacturing Costs Units sold Selling price Direct material Direct labour Leashes 50,000 $30.00 $11.25 $10.00 Boardbags 25,000 $110.00 $60.00 $37.00 Paddles 30,000 $80.00 $20.00 $51.50 Variable overhead - percent of direct labour 10% 10% 10% Fixed annual costs for the company are as follows: Fixed manufacturing overhead* $250,000 Corporate fixed expenses: Research and development $20,000 Selling and marketing $58,000 o General administrative $25,000 O * Fixed manufacturing overhead allocated to segments based on variabl ad amounts. All three managers have received the above information and were asked to review it prior to the meeting. In addition, Patty has provided them with her assumptions regarding business performance next year. Specifically, she expects product sales prices to remain unchanged, sales volumes for all products to increase by 10%, product variable costs to increase by 3%, and all fixed costs to be held to an increase of 2%. Connor Baxter, Sales Manager Connor believes greater profits can be taken from the existing product line. In his presentation, he suggested that more aggressive product promotion would cost little and would dramatically increase unit sales of all products. To achieve this, he recommended a modest increase in promotional spending. Specifically, selling expense should be increased by 10% instead of the 2% proposed by Patty. The result, Connor forecasted, will be a 50% increase in sales volume across all products rather than the 10% forecast by Patty. All other assumptions provided by Patty are unchanged in this strategic option (i.e., sales price, variable costs, and fixed costs other than selling) Budgeted Segmented Income Statement Aluminum Paddles Leashes Boardbags Total Sales $ XXX $ XXX $ XXX $ XXX Cost of Goods Sold Direct materials Direct labour Variable overhead Fixed manufacturing overhead Total cost of goods sold $ XXX XXX XXX $ XXX XXX $ XXX XXX XXX XXX $ XXX $ XXX XXX XXX XXX $ XXX XXX XXX XXX $ XXX $ XXX $ XXX $ XXX $ XXX $ XXX XXX Gross Margin Research and development Selling and marketing General administrative Net Income XXX XXX $ XXX