Question 1: Cost Classifications, CVP Income Statement & Analysis (27 marks) 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 1,782,918 Required: Classify each of the below operating expenses as variable or fixed. Cost of goods sold 217.567 Cost Variable or Fixed Gross margin 1065,351 Cost of goods sold increases proportionately with sales Operating expenses: (See notes) Employees are paid fixed monthly salaries supplemented by a commission on all sales except for the Parts & Service department's sales (see note I below for sales for each segment). Advertising 104,000 Monthly Salaries To be calculated by the group Depreciation 22,280 Property taxes 34,478 Rent components Rent 113,488 Parts & service expenses 94,042 Salaries and commissions 394,917 Utilities 103,297 Total operating expenses 866.502 Operating income 198,849 Interest expenses 7.000 Income before taxes 191,849 Income taxes Net income 49.881 141,969 Sales Commission as a percentage of sales Monthly Percentage of sales 5,000 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. 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 Packages Mountain Bikes 623,047 Accessories Parts & Service 734,066 287,590 138,215