Notes TOTAL 1,918,573 Sales LIUS LUUITLY UNI Packages 686,178 46% 318,387 367,791 Mountain Bikes 758,359 47% 359,538 398,821 Accessories 359,228 27% 95,591 263,637 Parts & Service 114,808 19% 22,365 92,443 795,880 1,122,693 8,077 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 1. 2 3 4 10,370 6,057 HINTAAN 31,438 6,057 8,482 37,186 36,486 137,5221 25,550 282,719 85,072 46,115 6,057 8.482 37,186 40,324 137,522 25,550 301 234 97,587 2,250 95,337 8,182 37,186 19,101 137,522 25,550 244.267 9,370 6,057 8,482 37,186 ol 70,000 25550 155,351 -62,908 96,000 24,227 33,926 148,743 95,911 482,5651 102,200 983,572) 139,122 7 2,250 2,250 7 120 2.250 -65,158 82,822 1 130,122 fax Commissions 5 10,370 bola 6.057 8,077 6,057 8,482 37,186 8 NOWN 31,438 6,057 8,482 37,186 36,486 137,522 25 550 282,719 85,072 ,482 37,186 9,101 1 1 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) el 137,522 46,115 6,057 8,482 37,186 40,324 137,522 25,550 301,234 97,587 2,250 95,337 1 5,049 0,28 25,550 244,267 19,370 2,250 17,120 70,000 25,550 155,351 -62.908 2.250 -65,158 96,000 24,227 33,926 148,743 95,911 482,565 102,200 983,572 139,122 9,000 130,122 38,074 $92,048 2,250 29% 82,822 13, 617 $69,205 7.179 2,278 $80,287 $9,992 $67,436 Notes to the financial statements: focuses as follows: Cross country ski packages Mountain bikes Accessories Parts & Service TOTAL Promotes company as a Nardy whole $ 18,000 $ 25,000 $ 39,000 $ 7,000 96,000 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. 6,000 4. Rent has two components: Monthly amount Percentage based on each department's sales ased on each 5. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts & service expense for th 16. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service department employees do not 43 5. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts & service expense for th 45 6. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service department employees do not 47 missions 15% 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. 59,000 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. 83,000 The Parts & Service Employees only work in that department. If this department were closed, the 50 technicians would be laid off. The total salary for the technicians is 70,000 52 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 54 8. Interest expense is charged on the outstanding bank loans. The total interest expense is $ 9,000 56 9. Income taxes are calculated for the company as a whole. The company will have to pay taxes regardless of which product lines it offers. JL Fall 20. Alldysis (2J Hals) 23 2. Which is the most profitable department? 24 3. Management is considering implementing a new advertising campaign on one of the departments: Cross Country Skis, Mountain Bikes, or Access The estimates of the increase in sales is shown below. How much would income increase in each department? 7 New advertising campaign cost $ 15,000 Increase in income 00 Cross Country Skis 01 Mountain Bikes 02 Accessories Estimated % increase in sales 12% 6% 13% 04 Which department should the advertising be spent on? 6 4. Explain to management how you completed the increase in income calculations and why you chose the department you did in part 3. N 5. Management has been trying to decide if any departments should be closed. Based on the segmented income statement you prepared, what are your recommendations to management? Which (if any) department should be closed? 6. Management had been considering closing the Parts & Service Department based on the segmented income statement that the junior accountant prepared. If this segment were closed, management estimates that sales for both Cross Country Skis and Mountain Bikes will decrease by 15%. Calculate th overall decrease in income to the company as a whole if the parts & service department is closed. Show all amounts as positive: Contribution Margin Lost: Parts & Service Department Cross Country Skis Mountain Bikes Total CM Lost Fixed Costs Avoided Increase (decrease) in income 7. Based on both quantitative and qualitative analysis, should the Parts & Service Department be closed? Explain to management in a way that they can understand. Be sure to use your answer from part 6 in your response. Do not give textbook answers, use question data! 8.Please write a brief memo to the junior accountant explaining the changes you made to the segmented income statement. It may be worthwhile to explair common vs. traceable fixed expenses! Textbook definitions will not be awarded marks. Please use question data and your own words. Even though the junior accountant has some accounting background, the owners do not. As such, please ensure you write explanations in a way that both the junior accountant and the owners can understand