IV. Question 2 Segmented Contribution Margin Income Statement 4) During the year, the two Repair & Service technicians combined were paid a total fixed salary of $59.999 for the whole year and are traced entirely to the Repair & Service Department. Thus, if the department was discontinued, the technicians would not be required. Mountain Sports Ltd. Income Statement-Segmented by product Line For the Year Ending December 31, 2018 IV. Question 2 Segmented Contribution Marain Income Statement continued) Cross Country Ski Packages Mountain Bicycles Repair & Service Dept c. Advertising - all advertising costs are traceable fixed expenses. TOTAL Accessories d. Cost of Goods Sold varies with sales activity. S Sales Cost of goods sold Gross Profit $ 1,957 427 S 833,623 $ 1,123.804 $ 608,350 $ 828,150 $ 273,758 380,949 334.593 $ 447,201 $ 403,110 161,244 241,866 117.818 17.673 100.145 $ e. The Repairs and Maintenance expenses varies with sales activity for the Cross Country, Mountain Bicycle and Accessories Departments. $ $ $ NOTE: The revised Income Statement should be consistent with the Contribution Margin Income Statement prepared in Question 1. Operating expenses: Advertising Depreciation Property taxes Rent Repairs & service expense Salaries & commissions Utilities Total Expenses 98 900 S 21,528 32.000 48,000 8.625 5,382 8.000 12,000 38 525 5,382 8,000 12,000 31,399 110 387 25.000 230,692 46,000 $ 5,382 8,000 12,000 42,742 110,387 25,000 249,511 $ 5,750 5,382 8.000 12.000 20,805 110,387 25,000 187,324 Part B: (record answer below) 391,160 100.000 786.532 59,999 25.000 119,006 $ $ $ $ The owners think they should eliminate the Accessories and the Repairs and Service Departments as they are the least profitable. After reformatting the income statement, what do you recommend to the owners and why? Operating income (loss $ 337 272 S 103.900 $ 197,690 $ 54,542 $ 19,861 Answer: Part A: (answer in the Excel Solution Workbook file on the Question 2 tab) In order to resolve product line issues, reformat the above Segmented Income Statement. a. Rent, utilities, depreciation, and property taxes are Common Fixed Costs and have been allocated equally among the 4 product lines. If any one of the product lines was eliminated, these costs will remain. b. Details of salaries and commissions follow: 1) 10% sales commissions were paid on all sales except for the sales of the Repair & Service department. 2) Besides sales commissions, the four sales clerks are paid a fixed amount of $1,400 each per month. They sell all three product lines (skis, bikes and accessories), so their salaries are considered common costs. 3) The two managers are paid a fixed amount of $40,000 each per year. Both are responsible for the company as a whole
