Mountain Sports carries a limited line of products and sentices that can be divided into four departments [segments] 1.Crossicountry 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 opemting income to date as shown in the company's overall income statement in Question 1. However, theywant to get a better idea of how each of its' four departments are doing. The iunior 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 statem ent, 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 accounta nt's statement is correct. Ultimately, it is ur to you to provide a corrected segmented income statement and provide recommendations to the owners. )1. notefran'l thefunior accountant. Kelly: Hi againl lhaye to admit, l don 'thave much experienoe with segmented income statements. Our manager, Sarah, was trying to tell me aboutcommon and trawablefixed costs. l didn 't understand it so ljust ignored it {keep that between usl}. lgaye it my bestshot butl'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 I. The sales and cost ofgoods sold information was taken drrectlyfrom each department My man agercheclred this over and it was correct.l You can use this information when you re-state the segmented income statement below. Oh, the parts 8: service expense is also conectl 2. ljust allocated a lot of the expenses equally to the product lines, l wasn 't exactly sure what to do. You can see which ones l allocated equally below which include: depreciation, property taxes, rent and utilities. There's some notes to the segmented income statement below which l think should help you determine how to properly do it...or maybe l did do it properly (hmmm, l'm not sure};I My man ager said all of these expenses will stay the same even if any one of the product lines were eliminated. ln other words, the company would continue to incur all these costs regardless of which product lines are oered. 3. There's a lot of information in the notes regarding salaries and commissions. The pads and service department is treated a bit dieren tly because those employees don't receive commissions. So ljustfigured out the total salaries and commissions for the other employees and split it equally between cross country skis, mountain bikes and auxssones. However, my managersaid that these employees will continue to wont at the company no matter what fthey sell all the products in the store}. Does that matter?I 4. There was some advertising that was spentspecifically on each department and then some that wasfor the company as a whole. lJust kind ofguessed how to put this into the statement Maybe this has something to do With the common vs. tameable expense thing? This is so hard.l Help.l l have afeeling that my statement rsn 'tcorrectsince l ignored the whole common vs. traceable fixed expenses thing and l allocated things equally across some product lines. Can you help me create the segmented income statement properly\" \fNotes to the nancial 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 Bikes Accessories Parts E: Service Promotes TOTAL company as a whole 5 34,000 5 42,000 5 T,000 5 8,000 5 15,000 5 105,000 2. The company uses the straightline method of depreciation. 3. The property tax areset by the City and do not change with changes in sales volume. 4. Rent has two components: Monthly amount 4,000 Percentage based on each department's sales 396 5. Parts and servicu expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts Sc service expense for the parts Sc service department. 5. Sal commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts 8: Service department emp Sales commissions 12% 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. 5 55000 The store managers are paid a total yearlysalary. They are responsiblefor all ofthe departments. These managers will continue to work even if any of the divisions are closed. 5 32,000 The Parts .5: Service Employees only work in that department. If this department were closed, the technicians would he laid off. The total salaryfor the technicians is 5 55,000 7'. Utilities are the same regardless of activity and will not change even if a product line is dropped. 8. Interat expense is charged on the outstanding bank loans. The total interest expense is 3 8,000 oyees do not earn sales commissions on their sales. 9. Income taxes are calculated for the company as a whole. The company will have to paytaxes regardless of which product lines it offers. 2. I.'v'hich product line HOE the bat job of turning SBIE into profits? (hint: see "SEE" qutions in chapter I workbook} 3. Management has been trying to decide if any departments should be closed. Based on the segmented income statement y_ou preparedl what are your recommendations to management? Which {if any} department should be closed? 4. Management had been considering closing the Farm 5. Service Department based on the segmented income statement that the junior accountant prepared. If this segment were closed, management Etimat that SBIE for both Cross Country Skis and Mountain Bik will decrease {see percentage below}- Calculate the overall decrease in income to the company as a whole if the parts E service de artment is closed. Decrease in cross country skis and 10K mountain bikes Show all ar'nou nu. as positive numbers: Contribution Margin Lost: Farm 8; Service Deoa rtm ent Cross Countrv Skis Mountain Bikes Total CM Lost Fixed Cosi: Avoided Increase [decrease] in income 5. Based on both quantitative and qualitative analysis, should the Farm 5. Service Department be closed? Explain to management in a wavthat they:r can understand. Be sure to use your answer from the previous part in 1\"Pour raponse. Do not give textbook answers, use quation data! {2 marks} : E.Please write a brief memo to the junior accountant explaining the chang you made to the segmented income statement- Textbook. definitions will not be awarded marks- Please use quation data and vour own words. Even though the junior accountant has some accounting background. the owners do not. As such. please ensure vou write explanations in a wavyr that both the junior accountant and the owners can understand. {5 marks}