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 leamed 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 10 Sales 11 Cost of goods sold 12 Gross margin Part A: Cost Classification (Chapter 2, 6) (5 marks) 1,782,918 717,567 Required: Classify each of the below operating expenses as variable or fixed. Cost 1,065,351 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). Variable or Fixed 13 Operating expenses: (See notes) 14 Advertising 104,000 Monthly Salaries 15 16 Depreciation 22,280 Commission as a percentage of sales To be calculated by the group 11% Property taxes 34,478 Rent components: 17 Rent 113,488 Monthly 18 Parts & service expenses 94,042 19 Salaries and commissions 394,917 20 Utilities 103,297 21 Total operating expenses 866,502 22 Operating income 23 Interest expenses 198,849 7,000 24 Income before taxes 191,849 25 Income taxes 49,881 26 Net income 141,969 27 Sales Percentage of sales 5,000 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 Packages Mountain Bikes 623,047 $ 734,066 5 Accessories Parts & Service 287,590 $ 138,215