Spring 2022 25% OF COURSE GRADE Overview This case illustrates how managerial accounting concepts can be used to help management better understand their performance, prepare meaningful reports and provide meaningful recommendations to ensure management can make more information decisions for their company. Background Mountain Sports Ltd. is a small, fictional, Lethbridge-based company. This retail store operation is an Alberta Corporation with 20,000 outstanding common shares divided equally amongst five owners. Lisa Marconi, an owner, is the Company President while Jeff Peterson, another owner, holds the position of Marketing Manager. The other three owners are not actively involved in the day to day operations. The company was formed in 2012. Requirements There are numerous requirements to this case study. It is your job to complete the requirements, explain managerial accounting concepts and provide recommendations to the owners in a way that they can understand. One of the owner's children is working on completing an accounting diploma and has been hired as a junior accountant to complete the bookkeeping for the company. The junior accountant has tried preparing some analysis the owners requested but has struggled with it. You will see notes from the junior accountant in some of the questions. The owners need some help with understanding managerial accounting concepts so they can do a better job of planning in the future. The owners do not have an accounting background so you have to be careful when explaining accounting concepts and providing recommendations. Marks will not be awarded for textbook definitions. You must use case data in your explanations and ensure that you are explaining concepts in a way that both the owners and the junior accountant can understand. Calculations All calculations must be completed in Excel. You can use excel formulas or calculate results using a calculator. Round to the nearest 2 digits Check Figures Multiple check figures are provided in the case study to ensure you are on the right track. Please ensure that you can arrive at these check figures before moving on. Since check figures are provided, and this is worth 25% of your course grade, very minimal instructional help will be provided. Please refer back to the work you completed during the semester. The chapter coverage is shown below for each question for your convenience. Question Topic Chapter Covered Marks Available Marks Earned la Cost Classifications 2 5 lb CVP Income Statement 6 13 lc CVP Analysis 6 13 2a Segmented Income Statement 7 25 2b 2c Analysis of Segments & Recommendations to Management Memo to the Junior Accountant 7 18 7 10 3a Budgeted Income Statement for New Product Line 10 13 3b. New Product Line - Impact to Overall Income 6 8 3c 4a 4b Pricing of New Product Line Performance Measurement Calculations Analysis of Performance 9 12 11 4 11 6. TOTAL 127 Grade Earned Mountain Sports carries a limited line of products and services that can be divided into four departments (segments): 1. Cross-country ski packages (skis, boots, and poles). 2. Mountain bikes 3. Accessories 4. Parts and service The owners of the company have been pleased with the operating income to date as shown in the company's overall income statement in Question 1. However, they want to get a better idea of how each of its four depart accountant, Kelly, thought a segmented income statement would provide the information the owners are looking for, however, Kelly has never prepared a segmented income statement. While Kelly tried to create the segn you to review it and make changes as necessary. Additional notes have been provided to the income statement so that you may assess if the junior accountant's statement is correct. Ultimately, it is up to you to provide a i statement and provide recommendations to the owners. A note from the junior accountant, Kelly Hi again! I have to admit, I don't have much experience with segmented income statements. Our manager, Sarak, was trying to tell me about common and traceable fixed costs. I didn't understand it, so I just ignored it my best shot but I'm really hoping you'll be able to help me. Here's some of the information and assumptions I used when creating this segmented income statement 1. The sales and cost of goods sold information was taken directly from each department. My manager checked this over and it was correct! You can use this information when you re-state the segmented income stateme expense is also correct! 21 just allocated a lot of the expenses equally to the product lines. I wasn't exactly sure what to do. You can see which ones I allocated equally below which include: depreciation, property taxes, rent and utilities. There income statement below which I think should help you determine how to properly do it...or maybe I did do it properly (mmm, I'm not sure) My manager said all of these expenses will stay the same even if any one of th In other words, the company would continue to incur all these custs regardless of which product lines are offered 3. There's a lot of information in the notes regarding salaries and commissions. The parts and service department is treated a bit differently because those employees don't receive commissions. So I just figured out the to the other employees and split it equally between cruss country skis, mountain bikes and accessories. However, my manager said that these employees will continue to work at the company no matter what they sell all the matter? 4. There was some advertising that was spent specifically on each department and then some that was for the company as a whole. I just kind of guessed how to put this into the statement. Maybe this has something to do expense thing? This is so hard! Help! I have a feeling that my statement isn't correct since I ignored the whole common vs. traceable fixed expenses thing and I allocated things equally across some product lines. Can you help me create the segmented income Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 Cross Country Ski Kells, Junise Accentant This is my fin apt at the segmented incom ume I think it's safe to say that I need help Notes: Sales Cost of goods sold Cost of goods sold Gross Profit Operating expenses Advertising Depreciation Property taxes Parts & service expense Salaries & commissions Utilities Total Operating Expenses Operating income tloss) Interest expense Income (Loss) before taxes Income tax Net Income (Loss) Notes to the financial statements: Mountain Bikes Accessories Packages 695.709 425 719,914 294.285 356 357 353,106 28% 100.459 Parts & Service 126,615 TOTAL 1,895,344 401,424 363,557 252 647 16% 20.676 105.939 771,772 1.123.567 33,671 43,799 8,863 7.668 94,000 DO NOT statement. 5.936 5,936 5,936 5.936 23,745 only. There 9.396 9.396 9.396 9.196 37,583 the segment 32.215 32.215 32.215 32.215 128,860 38,055 39,379 19,315 96,749 111.853 111,853 111,853 68,000 403,560 25.985 25.985 25.985 25.985 103.941 257.11 268,563 213,564 149.200 888 439 144.313 94.993 39,084 43.262 235,128 2.500 2,500 500 2.500 10,000 141,813 92.493 36.584 45.762 225.128 22,667 $119,146 23,456 11,505 4,125 61,753 $69,038 $25.079 $49.887 $163.376 1. Advertising is committed to at the beginning of the period by management. Management has many different forms of advertising campaigns with different focuses as follows: Cross country ski packages Mountain Bikes Accessories Parts & Service Promotes company TOTAL as a whole 7,000 7,000 10,000 94,000 30,000 40,000 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. 4. Rent has two components: Monthly amount Percentage based on cach department's sales 6,000 5. Parts and services expense varies with sales of cross country skis, mountain bikes, and accessories. There are no parts & service expense for the parts & service department 6. Sales commissions are paid on sales for cross country skis, mountain bikes, and accessories. The Parts & Service department employees do not earn sales commissions on their sales. Sales commissions 11% 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. 61,000 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. 80,000 The Parts & Service Employees only work in that department. If this department were closed, the technicians would be laid off. The total salary for the technicians is 68,000 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 8. Interest expense is charged on the outstanding bank loans. The total interest expense is 10,000 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, Required: Part A: (25 marks) 1) Restate the segmented income statement using the statement the junior accountant prepared and the notes to the financial statements (Chapter 7 Appendix) Check figures have been provided to ensure you are on the right track. Notes: The percentage column should be taken as a percentage of sales (for example, cost of goods sold % for mountain bikes should be taken as a % of mountain bike sales) There may be small rounding differences where total amounts are off by $1, that is ok! Use full Excel functionality and entering formulas into each cell if you know how if not using a calculat SALES Cross Country Ski Packages Amount 695,709 Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) Cost of Goods Sold Mountain Sports Ltd. Segmented Income Statement-By Product Line For the Year Ended December 31, 2019. Mountain Bikes Amount 100% 719.914 Accessories Percent Amount Percent Parts and Service Department Amount 100.0% 353.106 100,0% Percent 126,615 100.0% 294,285 42.3% 356 357 49.5% 100,459 28.4% 20.676 16.3% TOTAL CONTRIBUTION MARGIN Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY) Advertising Salaries TOTAL Traceable Fixed Costs SEGMENT MARGIN Lee Common Fixed Code (MUST BE LISTED ALPHABETICALLY