D G 1 Question 2 - Segmented Income Statement Product line Analysis (41 marts H 12 Mountain Sports carries a limited line of products and services that can be divided into four departments segments) 1. Cross-country ski packages (skis, boots, and poles 2. Mountain bikes 3. Accessories 4. Parts and service The owners of the company have been pleased with the operating income to date as shown in the company's overal income statement in Question 1. However, they want to get better idea of how each of its four departments are doing the junior accountant, Kelly thought a segmented income statement would provide the information the owners are looking for however Kely has never prepared a segmented income statement. While Kelly tried to create the segmented statement, she has asked you to review it and make changes as necessary. Additional notes have been provided to the income statement so that you may assess the junior accountant's statement is correct. Ultimately, it is up to you to provide a corrected segmented income statement and provide recommendations to the owners A note from the junior accountant Kelly Hagain! Thave to admit I don't have much experience with segmented income statements. Our many Sarah, was trying to tell me about common and traceable feed costs. I didn't understand it, so I just imored it keep that between usarve it my best shot but I'm really hope you'll be able to help me. Here's some of the information and assumptions I 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 semented income statement below on the parts & service expense is also correct! 2./fuit located a lot of the expenses equal to the product lines. I wasn't eactly sure what to do you can see which ones allocated equaly below which include: depreciation property taxes, rent and utilities. There's some notes to the segmented Income statement below which this should help you determine how to properly do It...or maybe I did do it properly hmmI'm not sure? My manager said all of these expenses will stay the same even if any one of the product Ines were eliminated In other words, the company would continue to incur at 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 don't receive commissions. So I just figured out the total salaries and commissions for the other employees and split it equally between cross country skii, mountain bikes and accessories. However, my murager sand 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 weideweg this into the statement Mavbe this has something to do with the common traceable expense chine? This is so hard! Helal Note from Kelly, ore There was some that we went for each and then some that was for the company as a whole thind of to the statement. Maybe this has something to do with the common trouble expene thing that hardt Heul le from man Mountain Sports Ltd Segmented income Statement The systems to me For the Year Ended Dec 31, 2019 Hent safe to say that seed hell Cross Country Ski Mountain Parts & 10 Notes Packages Bi Adres Service 11 Sales TOTAL 684278 754.907 316.25 12 Cost of goods sold 1,099 289 46% 48 28 LINI 13 Cost of goods sold 302115 365243 90070 200 282,05 14 Gross Profit 381143 399,6641 226 158 100.444 1.116.479 15 Operating expenses 16 Advertising 1 34,404 10,041 2,057 90,000 17 Depreciation 2 6128 6,128 120 6128 24,511 18 Property tanes 3 9.998 9.995 9,998 9.998 39,993 19 Rent 4 13,348 13,748 13.740 11,740 56093 20 Parts & service expense 5 35,789 48,006 16,541 92.335 21 Salaries & Commissions 6 131.721 131,721 131721 475.162 22 Utilities 7 255201 26.620 26.620 26620 106472 23 Total Operating Expenses 258.40H 268 261 213.251 143.551 RRU0 24 Operating income foss 122,735 131,403 12.935 -34067 233,006 25 interest expense 1.500 1,500 1.500 1.500 6,000 26 income (Loss) before takes 121.235 129.903 11.435 35567 227.006 27 Income tax 2100 17 175 19 199 7938 3,3591 47.821 28 Net Income (LOSS $104,060 5110204 53092 3:26 179.225 79 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 31 F G H 1 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: 31 Cross country ski packages Mountain Accessories Parts & Service Promotes TOTAL Bikes 32 company as 33S 29,000 $ 34,000 $ a whole 6,000 $ 6,000 $ 15,000 90,000 34 35. 2. The company uses the straight line method of depreciation 36 37 3. The property taxes are set by the City and do not change with changes in sales volume. 38 39 4. Rent has two components: 40 Monthly amount 3,000 Percentage based on each 41 department's sales 1% #2 3 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 14 56. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service department employees do not earn sales commissions on their sales 6 7 Sales commissions 14% Total yearly salary of employees that sell skls, bikes, and accessories. These employees will continue to work for the company regardless of which product Blines are offered $ 69,000 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 $ 79,000 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 S 80,000 7. Utilities are the same regardless of activity and will not change even if a product line is dropped 56 52 7. Unies are the same regardless of activity and will not change even if a product line is dropped Se interest expense is charged on the outstanding bank loans. The total interest 6,000 9. Income taes are calated for the company as a whole. The company will have to worden of which product that offers Required: Part A (25 marta) 1) Restate the segmented income statement using the statement the jutor accountant prepared and the notes to the finantatements (Chapter 7 opend 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 group members to determine where you went wrongl see the word document provided to your group containing the check figures Notes: The percentage column should be taken as a percentage of sales (for example, cost of goods sold for mountan bhes should be taken as a ot mountain bike sale There may be small rounding differences where total amtunts are off by $1, that is ok! Make sure you are using Poliwel functionality and estering formular inte exch cell You cannot use your calculator and input the final answer 50 59 60 Not from Kelly, but The sales and cost of you is correct selslotted in the confirmed that there were the mouth Mountain Sports Ild Segmented income Statement Product Line for the Year Ended December 31, 2019 Mountain Bikes Accessories Amount Percent Amount Percent 63 54 Cross Country Sa Packages Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent 100% 654278 55. SALES 100.0% 316, 2581 100.0% 1,899,287 764.907 100.0% 133,840 100.0% Less: Variable Costs (MUST BE LISTED ALPHABETICALLY 47.8% 24.360 18.2% 412N 44.35 90,070 28.5% 782,800 303,135 7 Cost of Goods Sold Commissions FLET Condal 93 323 39 Co Cry 5 Packare Art Percent Mountain Soortsid Segmented income Statement Price for the Year Ended December 1, 2015 Mountains Access Art PE Am PM Did Service Amount TOTA: Amount Peren 65 SALES Percent 684278 100% 76407 TODON 31625 3000 23 56 Variable costs MUST BE USTED ALPHABETICALLY 100 ON 2 100 ON 57 Cost of Goods Sold 135 40 50.000 2858 24.300 12 012 08 Commons 69 Parts & Sersice pense 70 Rent 21 TOTAL 72 Contribution Martin Any provided charif you do aataadanae your members panty or the check Aga match the engineers provided Les Traceabile Ford Costa MUST BE LISTED ALPHABETICALLY 74 75 76 TOTAL Traceable Fired Costs R2 78 Less: Common Fixed Costs (MUST BE USTED ALPHABETICALLY to nor 0 77 G H 78 Less Common Fixed Costs. (MUST BE USTED ALPHABETICALLY 79 80 31 52 83 94 85 86 87 88 9983 90 91 92 Part 2: 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) 94 w Part 2b Analysis (16 mars F H 1 2. Which product line does the best job of turning sales into 93 profits? (hint: see "SEG" questions in chapter 7 workbook) 94 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 (if any 96 department should be closed? 97 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. 98 Decrease in cross country skis and 6% 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 109 109 S. 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 stion datamu atthon 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) 110 111 112 113 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) 14 15 16 17 8 D G 1 Question 2 - Segmented Income Statement Product line Analysis (41 marts H 12 Mountain Sports carries a limited line of products and services that can be divided into four departments segments) 1. Cross-country ski packages (skis, boots, and poles 2. Mountain bikes 3. Accessories 4. Parts and service The owners of the company have been pleased with the operating income to date as shown in the company's overal income statement in Question 1. However, they want to get better idea of how each of its four departments are doing the junior accountant, Kelly thought a segmented income statement would provide the information the owners are looking for however Kely has never prepared a segmented income statement. While Kelly tried to create the segmented statement, she has asked you to review it and make changes as necessary. Additional notes have been provided to the income statement so that you may assess the junior accountant's statement is correct. Ultimately, it is up to you to provide a corrected segmented income statement and provide recommendations to the owners A note from the junior accountant Kelly Hagain! Thave to admit I don't have much experience with segmented income statements. Our many Sarah, was trying to tell me about common and traceable feed costs. I didn't understand it, so I just imored it keep that between usarve it my best shot but I'm really hope you'll be able to help me. Here's some of the information and assumptions I 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 semented income statement below on the parts & service expense is also correct! 2./fuit located a lot of the expenses equal to the product lines. I wasn't eactly sure what to do you can see which ones allocated equaly below which include: depreciation property taxes, rent and utilities. There's some notes to the segmented Income statement below which this should help you determine how to properly do It...or maybe I did do it properly hmmI'm not sure? My manager said all of these expenses will stay the same even if any one of the product Ines were eliminated In other words, the company would continue to incur at 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 don't receive commissions. So I just figured out the total salaries and commissions for the other employees and split it equally between cross country skii, mountain bikes and accessories. However, my murager sand 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 weideweg this into the statement Mavbe this has something to do with the common traceable expense chine? This is so hard! Helal Note from Kelly, ore There was some that we went for each and then some that was for the company as a whole thind of to the statement. Maybe this has something to do with the common trouble expene thing that hardt Heul le from man Mountain Sports Ltd Segmented income Statement The systems to me For the Year Ended Dec 31, 2019 Hent safe to say that seed hell Cross Country Ski Mountain Parts & 10 Notes Packages Bi Adres Service 11 Sales TOTAL 684278 754.907 316.25 12 Cost of goods sold 1,099 289 46% 48 28 LINI 13 Cost of goods sold 302115 365243 90070 200 282,05 14 Gross Profit 381143 399,6641 226 158 100.444 1.116.479 15 Operating expenses 16 Advertising 1 34,404 10,041 2,057 90,000 17 Depreciation 2 6128 6,128 120 6128 24,511 18 Property tanes 3 9.998 9.995 9,998 9.998 39,993 19 Rent 4 13,348 13,748 13.740 11,740 56093 20 Parts & service expense 5 35,789 48,006 16,541 92.335 21 Salaries & Commissions 6 131.721 131,721 131721 475.162 22 Utilities 7 255201 26.620 26.620 26620 106472 23 Total Operating Expenses 258.40H 268 261 213.251 143.551 RRU0 24 Operating income foss 122,735 131,403 12.935 -34067 233,006 25 interest expense 1.500 1,500 1.500 1.500 6,000 26 income (Loss) before takes 121.235 129.903 11.435 35567 227.006 27 Income tax 2100 17 175 19 199 7938 3,3591 47.821 28 Net Income (LOSS $104,060 5110204 53092 3:26 179.225 79 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 31 F G H 1 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: 31 Cross country ski packages Mountain Accessories Parts & Service Promotes TOTAL Bikes 32 company as 33S 29,000 $ 34,000 $ a whole 6,000 $ 6,000 $ 15,000 90,000 34 35. 2. The company uses the straight line method of depreciation 36 37 3. The property taxes are set by the City and do not change with changes in sales volume. 38 39 4. Rent has two components: 40 Monthly amount 3,000 Percentage based on each 41 department's sales 1% #2 3 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 14 56. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service department employees do not earn sales commissions on their sales 6 7 Sales commissions 14% Total yearly salary of employees that sell skls, bikes, and accessories. These employees will continue to work for the company regardless of which product Blines are offered $ 69,000 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 $ 79,000 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 S 80,000 7. Utilities are the same regardless of activity and will not change even if a product line is dropped 56 52 7. Unies are the same regardless of activity and will not change even if a product line is dropped Se interest expense is charged on the outstanding bank loans. The total interest 6,000 9. Income taes are calated for the company as a whole. The company will have to worden of which product that offers Required: Part A (25 marta) 1) Restate the segmented income statement using the statement the jutor accountant prepared and the notes to the finantatements (Chapter 7 opend 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 group members to determine where you went wrongl see the word document provided to your group containing the check figures Notes: The percentage column should be taken as a percentage of sales (for example, cost of goods sold for mountan bhes should be taken as a ot mountain bike sale There may be small rounding differences where total amtunts are off by $1, that is ok! Make sure you are using Poliwel functionality and estering formular inte exch cell You cannot use your calculator and input the final answer 50 59 60 Not from Kelly, but The sales and cost of you is correct selslotted in the confirmed that there were the mouth Mountain Sports Ild Segmented income Statement Product Line for the Year Ended December 31, 2019 Mountain Bikes Accessories Amount Percent Amount Percent 63 54 Cross Country Sa Packages Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent 100% 654278 55. SALES 100.0% 316, 2581 100.0% 1,899,287 764.907 100.0% 133,840 100.0% Less: Variable Costs (MUST BE LISTED ALPHABETICALLY 47.8% 24.360 18.2% 412N 44.35 90,070 28.5% 782,800 303,135 7 Cost of Goods Sold Commissions FLET Condal 93 323 39 Co Cry 5 Packare Art Percent Mountain Soortsid Segmented income Statement Price for the Year Ended December 1, 2015 Mountains Access Art PE Am PM Did Service Amount TOTA: Amount Peren 65 SALES Percent 684278 100% 76407 TODON 31625 3000 23 56 Variable costs MUST BE USTED ALPHABETICALLY 100 ON 2 100 ON 57 Cost of Goods Sold 135 40 50.000 2858 24.300 12 012 08 Commons 69 Parts & Sersice pense 70 Rent 21 TOTAL 72 Contribution Martin Any provided charif you do aataadanae your members panty or the check Aga match the engineers provided Les Traceabile Ford Costa MUST BE LISTED ALPHABETICALLY 74 75 76 TOTAL Traceable Fired Costs R2 78 Less: Common Fixed Costs (MUST BE USTED ALPHABETICALLY to nor 0 77 G H 78 Less Common Fixed Costs. (MUST BE USTED ALPHABETICALLY 79 80 31 52 83 94 85 86 87 88 9983 90 91 92 Part 2: 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) 94 w Part 2b Analysis (16 mars F H 1 2. Which product line does the best job of turning sales into 93 profits? (hint: see "SEG" questions in chapter 7 workbook) 94 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 (if any 96 department should be closed? 97 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. 98 Decrease in cross country skis and 6% 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 109 109 S. 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 stion datamu atthon 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) 110 111 112 113 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) 14 15 16 17 8