Hi I needed help with this question please,
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 overall income statement in Question 1. However, they want to get a 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, Kelly 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 if 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: 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'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 segmented income statement. 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 segmented 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 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 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. I just kind of guessed how to put this into the statement. Maybe this has something to do with the common vs. traceable expense thing? This is so hard! Help! 2 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 overall income statement in Question 1. However, they want to get a 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, Kelly 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 if 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. 4 5 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'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 segmented income statement. 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 / allocated equally below which include: depreciation, property taxes, rent and utilities. There's some notes to the segmented 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 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 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. I just kind of guessed how to put this into the statement. Maybe this has something to do with the common vs. traceable expense thing? This is so hard! Help! Notes Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 Cross Country Ski Packages Mountain Bikes 677,081 739,053 41% 46% 276,249 342,329 400,832 396,724 TOTAL 1,934,292 Accessories 381,555 30% 113,513 268,042 Parts & Service 136,603 19% 26,446 110,157 758,537 1,175,755 3 9 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) 7 35,901 5,868 ,073 18,671 36,309 108,923 27,193 241,938 158,894 2,250 156,644 29,610 $127,034 49,349 5,868 9,073 18,671 39,633 108,923 27,193 258,710 138,014 2,250 135,764 32,320 $103,444 9,762 5,868 9,073 18,671 20,461 108,923 27,193 199,951 68,091 2,250 65,841 16,686 $49,155 7,989 5,868 9,073 18,671 0 56,000 27,193 124,794 -14,638 2,250 - 16,888 5,974 -$22,861 103,000 23,473 36,291 74,686 96,403 382,769 108,772 825,394 350,361 9,000 341,361 84,589 $256,772 8 25% 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 bicycles Accessories Parts & Service TOTAL Promotes company as a whole $ 14,000 31,000 $ 44,000 $ 7,000 $ 7,000 $ 103,000 Notes to the tinancial 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 bicycles Accessories Parts & Service TOTAL Promotes company as a whole $ 14,000 $ 31,000 $ 44,000 $ 7,000 $ 7,000 $ 103,000 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 & 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 employees do not earn sales commissions on their sales. 10% 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. 67,000 80,000 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. 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 $ 56,000 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 1) Restate the segmented income statement using the statement the junior accountant prepared and the notes to the financial statements. 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 need to tweak your answer! Ultimately your group will over-write the check figures with formulas, however, it will be your group's responsibility to ensure that you match up the check figures to the original workbook provided. Notes: 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 Instructor: Keep cost of goods sold as the first variable expense, then list remaining variable costs alphabetically. Mountain Sports Ltd. Segmented Income Statement-By Product Line For the Year Ended December 31, 2019 Mountain Bicycles Accessories Amount Percent Amount Percent Cross Country Ski Packages Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent SALES 677,081 100% 739,053 100.0% 381,555 100.0% 136,603 100.0% 1,934,292 100.0% Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) | Cost of Goods Sold 276,249 40.8% 342,329 46.3% 113,513 29.8% 26,446 19.4% 758,537 39.2% TOTAL 47.1% 21.4% Cross Country Ski Packages Amount Percent Mountain Bicycles Amount Percent Accessories Amount Percent Parts and Service Department Amount Percent TOTAL Amount Percent SALES 677,081 100% 739,053 100.0% 381,555 100.0% 136,603 100.0% 1,934,292 100.0% Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) Cost of Goods Sold 276,249 276,249 40.8% 342,329 46.3% 113,513 29.8% 29.8% 26,446 19.4% 758,537 39.2% TOTAL 47.1% 21.4% CONTRIBUTION MARGIN 283,273 41.8% 268,405 36.3% 201,794 52.9% 107,425 78.6% 860,897 44.5% Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) TOTAL Traceable Fixed Costs SEGMENT MARGIN s 252,273 252,273 224,405 194,794 715,897 Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY) TOTAL Traceable Fixed Costs SEGMENT MARGIN 252,273 224,405 194,794 715,897 Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY) TOTAL Common F/C 365,536 OPERATING INCOME 350,361 Less: Interest Expense 9,000 Earnings before taxes 341,361 Less: Income Tax 84,589 VET INCOME 256,772
