Note from Kelly, the junior accountant: Hi there! Welcome to the team. I'm Kelly, the junior accountant here at Mountain Sports. I've been working with the company for awhile now, helping out with the bookkeeping. My mom is one of the owners. Anyway, I am quite comfortable with preparing a traditional income statement (this is the income statement learned to prepare in financial accounting). However, the owners are interested in quite a few CVP concepts. I learned about these in my introductory managerial accounting course but it's been awhile. Could you help me classify each of the operating expenses as variable or fixed expenses (Part A below)? After that, I think it would be helpful to prepare a CVP income statement (Part B) so that those other concepts (like break-even, margin of safety etc) can be calculated (Part C). My mom thought it would be a great idea to present these calculations along with detailed explanations to all of the owners since three of the owners aren't actively involved in the day to day operations of the business. Oh, I should tell you, the owners do not have an accounting background so we have to explain those CVP concepts in a way that they can understand. Thanks so much for your help! Mountain Sports Ltd. Income Statement For the Year Ended Dec 31, 2019 Part A: Cost Classification (Chapter 2, 6) (5 marks) Sales Cost of goods sold Gross margin 1,876,844 797,867 1,078,977 Variable or Fixed Required: Classify each of the below operating expenses as variable or fixed. Cost 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 segment). Operating expenses: (See notes) Advertising Depreciation Property taxes Rent Parts & service expenses Salaries and commissions Utilities Total operating expenses Operating income 93,000 22,414 33,702 104,305 94,339 443,271 108,116 899,147 179,830 Monthly Salaries To be calculated by the group Commission as a percentage of sales 13% Rent components: Monthly 4,000 Percentage of sales 3% Utilities costs incurred are independent of sales volume (they will not change if sales volume changes). Parts and Service expense varies with sales activity and can be traced to each product line. The company uses straight-line depreciation on all depreciable assets. The property taxes are set by the City and do not change with changes in sales volume. Mountain Sports Ltd. Income Statement For the Year Ended Dec 31, 2019 Part A: Cost Classification (Chapter 2.6) (5 marks) ales ost of goods sold ross margin 1,876,844 797,867) 1,078,977 Fixed Required: Classify each of the below operating expenses as variable or fixed. Cost 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 segment). perating expenses: (See notes) Advertising Depreciation Property taxes Rent Parts & service expenses Salaries and commissions Utilities otal operating expenses perating income nterest expenses ncome before taxes ncome taxes et income 93,000 22,414 33,702 104,3051 94.339 443,271 108,116 899.147 179,830 6,000 173.830 39,981 133,849 Monthly Salaries To be calculated by the group Commission as a percentage of sales 13% Rent components: Monthly 4,000 Percentage of sales 3% Utilities costs incurred are independent of sales volume (they will not change if sales volume Parts and Service expense varies with sales activity and can be traced to each product line. The company uses straight-line depreciation on all depreciable assets. The property taxes are set by the City and do not change with changes in sales volume. Advertising budgets are committed to at the beginning of each year. Note 1: Sales by Segment (taken from Q2 segmented income statement) Cross Country Ski Packag Mountain Bikes Accessories Sales 676,934 $ 713,491 $ Parts & Service 350,119 $ 136,300 $ Part B: CVP Income Statement (Chapter 6) (13 marks) Prepare a contribution margin income statement (below), using the traditional income statement provided and the cost information provided in Part A Check figures have been provided to ensure you are on the right track. 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. Mountain Sports Ltd. Contribution Margin Income Statement Note from Instructor: All formulas must be completed within the answer boxes. Do not use a calculator and input the final answer. It will result in rounding errors and you will be marked as incorrect Corpo Vascoded 21 2010 Part B: CVP Income Statement (Chapter 6) (13 marks) Prepare a contribution margin income statement (below), using the traditional income statement provided and the cost information provided in Part A Check figures have been provided to ensure you are on the right track. 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. Mountain Sports Ltd. Contribution Margin Income Statement For the Year Ended Dec 31, 2019 Note from Instructor: All formulas must be completed within the answer boxes. Do not 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 all calculations in the case study, TOTAL PERCENT Less: Variable Costs (must be listed in alphabetical order): Note from Instructor: You will be marked as incorreot if you do not follow instructions! Please read oarefully! Total variable costs Less: Fixed Costs (must be listed in alphabetical order) Part C: CVP Analysis (Chapter 6) (9 marks) Calculate the following and explain each calculation (in your own words). Be sure to explain what the number you've calculated means, ensuring you write it in a way so that a non- accountant can understand. For example, if you calculate a breakeven point of $1,000, what does $1,000 mean? Marks will not be awarded for textbook definitions. Calculation Explanation 1) Breakeven Point in Sales Dollars 2) Margin of Safety (In percent) 3) Degree of Operating Leverage (DOL) (operating income to be used in calculation) 4) The junior accountant left a note for you: In the 1717134777332227 NIIN7 22xse iru*: //23//24't'vrae VW7/exvaze is 3 MAIS Vrisk: /vit really welat. Car sex/alp me? Wirdres leverage //??? As it bewer 17/1ve with leveve w/wlerevaze? The ws/vested me if Hux KXXS NIVELV7 variaV/e 22' xv fixed, w'u's/1/8/3/? They expay #swes will ase/ext NA - no calculations needed Note from Kelly, the junior accountant: Hi there! Welcome to the team. I'm Kelly, the junior accountant here at Mountain Sports. I've been working with the company for awhile now, helping out with the bookkeeping. My mom is one of the owners. Anyway, I am quite comfortable with preparing a traditional income statement (this is the income statement learned to prepare in financial accounting). However, the owners are interested in quite a few CVP concepts. I learned about these in my introductory managerial accounting course but it's been awhile. Could you help me classify each of the operating expenses as variable or fixed expenses (Part A below)? After that, I think it would be helpful to prepare a CVP income statement (Part B) so that those other concepts (like break-even, margin of safety etc) can be calculated (Part C). My mom thought it would be a great idea to present these calculations along with detailed explanations to all of the owners since three of the owners aren't actively involved in the day to day operations of the business. Oh, I should tell you, the owners do not have an accounting background so we have to explain those CVP concepts in a way that they can understand. Thanks so much for your help! Mountain Sports Ltd. Income Statement For the Year Ended Dec 31, 2019 Part A: Cost Classification (Chapter 2, 6) (5 marks) Sales Cost of goods sold Gross margin 1,876,844 797,867 1,078,977 Variable or Fixed Required: Classify each of the below operating expenses as variable or fixed. Cost 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 segment). Operating expenses: (See notes) Advertising Depreciation Property taxes Rent Parts & service expenses Salaries and commissions Utilities Total operating expenses Operating income 93,000 22,414 33,702 104,305 94,339 443,271 108,116 899,147 179,830 Monthly Salaries To be calculated by the group Commission as a percentage of sales 13% Rent components: Monthly 4,000 Percentage of sales 3% Utilities costs incurred are independent of sales volume (they will not change if sales volume changes). Parts and Service expense varies with sales activity and can be traced to each product line. The company uses straight-line depreciation on all depreciable assets. The property taxes are set by the City and do not change with changes in sales volume. Mountain Sports Ltd. Income Statement For the Year Ended Dec 31, 2019 Part A: Cost Classification (Chapter 2.6) (5 marks) ales ost of goods sold ross margin 1,876,844 797,867) 1,078,977 Fixed Required: Classify each of the below operating expenses as variable or fixed. Cost 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 segment). perating expenses: (See notes) Advertising Depreciation Property taxes Rent Parts & service expenses Salaries and commissions Utilities otal operating expenses perating income nterest expenses ncome before taxes ncome taxes et income 93,000 22,414 33,702 104,3051 94.339 443,271 108,116 899.147 179,830 6,000 173.830 39,981 133,849 Monthly Salaries To be calculated by the group Commission as a percentage of sales 13% Rent components: Monthly 4,000 Percentage of sales 3% Utilities costs incurred are independent of sales volume (they will not change if sales volume Parts and Service expense varies with sales activity and can be traced to each product line. The company uses straight-line depreciation on all depreciable assets. The property taxes are set by the City and do not change with changes in sales volume. Advertising budgets are committed to at the beginning of each year. Note 1: Sales by Segment (taken from Q2 segmented income statement) Cross Country Ski Packag Mountain Bikes Accessories Sales 676,934 $ 713,491 $ Parts & Service 350,119 $ 136,300 $ Part B: CVP Income Statement (Chapter 6) (13 marks) Prepare a contribution margin income statement (below), using the traditional income statement provided and the cost information provided in Part A Check figures have been provided to ensure you are on the right track. 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. Mountain Sports Ltd. Contribution Margin Income Statement Note from Instructor: All formulas must be completed within the answer boxes. Do not use a calculator and input the final answer. It will result in rounding errors and you will be marked as incorrect Corpo Vascoded 21 2010 Part B: CVP Income Statement (Chapter 6) (13 marks) Prepare a contribution margin income statement (below), using the traditional income statement provided and the cost information provided in Part A Check figures have been provided to ensure you are on the right track. 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. Mountain Sports Ltd. Contribution Margin Income Statement For the Year Ended Dec 31, 2019 Note from Instructor: All formulas must be completed within the answer boxes. Do not 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 all calculations in the case study, TOTAL PERCENT Less: Variable Costs (must be listed in alphabetical order): Note from Instructor: You will be marked as incorreot if you do not follow instructions! Please read oarefully! Total variable costs Less: Fixed Costs (must be listed in alphabetical order) Part C: CVP Analysis (Chapter 6) (9 marks) Calculate the following and explain each calculation (in your own words). Be sure to explain what the number you've calculated means, ensuring you write it in a way so that a non- accountant can understand. For example, if you calculate a breakeven point of $1,000, what does $1,000 mean? Marks will not be awarded for textbook definitions. Calculation Explanation 1) Breakeven Point in Sales Dollars 2) Margin of Safety (In percent) 3) Degree of Operating Leverage (DOL) (operating income to be used in calculation) 4) The junior accountant left a note for you: In the 1717134777332227 NIIN7 22xse iru*: //23//24't'vrae VW7/exvaze is 3 MAIS Vrisk: /vit really welat. Car sex/alp me? Wirdres leverage //??? As it bewer 17/1ve with leveve w/wlerevaze? The ws/vested me if Hux KXXS NIVELV7 variaV/e 22' xv fixed, w'u's/1/8/3/? They expay #swes will ase/ext NA - no calculations needed