mountain Sports cio. Income Statement For the Year Ended Dec 31, 2021 Part A: Cost Classification (Chapter 2, 6) (5 marks) Sales 1,763,043 Required: Classify each of the below operating expenses as variable or fixed. Variable or Cost of goods sold 736,474 Cost Fixed Gross margin 1,026,569 Cost of goods sold increases proportionately with sales Employees are paid fixed monthly salaries supplemented by a commission on all sales except for the Parts & Service department's sales (see note 1 below for sales for each Operating expenses: (See notes) senment) Advertising 102,000 Monthly Salaries To be calculated by the group Depreciation 23,908 Commission as a percentage of sales 13% Property taxes 32,194 Rent components: Rent 100,891 Monthly 4,000 Parts & service expenses 93,066 Rent as a percentage of sales 3% Utilities costs incurred are independent of sales volume (they will not change if sales volume Salaries and commissions 425,003 changes). Parts and Service expense varies with sales activity and can be traced to each product line. Utilities 106,672 The company uses straight-line depreciation on all depreciable assets. Total operating expenses 883,734 The property taxes are set by the City and do not change with changes in sales volume. Operating income 142,835 Advertising budgets are committed to at the beginning of each year. Interest expenses 10,000 Income before taxes 132,835 Income taxes 34,537 Note 1: Sales by Segment (taken from Q2 segmented income statement) Net income 98,298 Cross Country Ski Packages Mountain Bikes Accessories Parts & Service Sales S 607,606 S 724,560 S 298,624 S 132,253Mountain Sports Ltd. Note from Instructor: All formulas must be Contribution Margin Income Statement completed within the answer boxes. Do not For the Year Ended Dec 31, 2021 use a calculator and input the final answer. It will result in rounding errors and you will be marked as incorrect. This is applicable for TOTAL PERCENT all calculations in the case study. Sales $1,763,043 100% Less: Variable Costs [must be listed in alphabetical order): Note from Instructor: You will be m incorrect if you do not follow instruc Please read carefully! Rent Total variable costs Contribution Margin 668,609 37.9% Less: Fixed Costs [must be listed in alphabetical order) Advertis Rent TOTAL Operating Income Less: Interest Expense Earnings Before Income Taxes Less: Income Takes Net IncomePart C: CVP Analysis (Chapter 6) (9 marks) Calculate the following and explain each calculation (in your own words). For example, if you calculate a breakeven point of $1,000, what does $1,000 mean? Marks will not be awarded for textbook definitions. Amount (do the Explanation (explain what the number actual means you've calculated in a way that a calculation!) non-accountant can understand). Note from Instructor: You may increase the 1) Breakeven Point in Sales Dollars size of the columns, however, do not change the formatting. Do not merge cells in any of the answer boxes. In other questions, you may need to increase the size of the column 2) Margin of Safety (In percent) but again, please do not merge any cells. 3) Degree of Operating Leverage (DOL) (operating income to be used in calculation) 4) The junior accountant left a note for you: In the managerial accounting course that I took, I learned that degree of operating leverage is a measure of risk. I don't really understand that. Can you help me? What does N/A - no leverage mean? Is it better to have high leverage or low leverage? The owners have calculations asked me if they should focus more on variable costs or fixed costs, what should I say? needed They expect that sales will increase next year. Hint - this is NOT asking about financial leverage. Revisit Chapter 6