please answer the following below, thank you!!

Segmented income statement 1234

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ptA

PtB

Please answer the following below, thank you!

1 Question 2 -Segmented Income Statement & Product line Analysis (41 marks) 2 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 Question 1. However, they want to get a better idea of how each of its' four departments are doing. The junior 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 segmented statement, she has asked 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 corrected segmented income statement and provide recommendations to the owners. 4 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, Sarah, was trying to tell me about common and traceable fixed costs. I didn't understand it, so I just ignored it (keep that between us!). I gave 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 statement below. Oh, the parts & service expense is also correct! 2. I 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's some notes to the segmented income statement below which I think should help you determine how to properly do it....or maybe I did do it properly (hmmm, I'm not sure)? My manager said all of these expenses will stay the same even if any one of the product lines were eliminated. In other words, the company would continue to incur all these costs 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 total salaries and commissions for the other employees and split it equally between cross 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 products in the store). Does that 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 with the common vs. traceable 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 statement properly? Note from Kelly, Junior accountant. 6 7 8 Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 This is my first attempt at the segmented income statement. I think it's safe to say that I need help! 9 7 8 Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 9 Cross Country 10 Ski Packages Accessories Mountain Bikes 734,066 11 Sales TOTAL 1,782,918 287,590 138,215 623,047 44% 12 Cost of goods sold % 47% 25% 19% 13 Cost of goods sold 276,633 341,414 72,789 26,731 717,567 14 Gross Profit 346,414 392,652 214,801 111,484 1,065,351 15 Operating expenses 16 Advertising 38,543 47,352 10,097 8,008 104,000 17 Depreciation 5,570 5,570 5,570 5,570 22,280 18 Property taxes 8,620 8,620 0,020 8,620 8,620 34,478 19 Rent 28,372 28,372 28,372 28,372 113,488 20 Parts & service expense 35,625 41,973 16,444 94,042 21 Salaries & commissions 106,639 106,639 106,639 75,000 394,917 22 Utilities 25,824 25,824 25,824 25,824 13 297 103,297 23 Total Operating Expenses 249,193 264,350 201,566 151,393 866,502 KATA 24 Operating income (loss) 150-203 10.000 97,221 128,302 13,235 -39,909 198,849 ANA 25 Interest expense 8 1,750 1,750 1,750 1,750 7,000 26 Income (Loss) before taxes 95,471 126,552 11,485 -41,659 191,849 27 Income tax 26.00% 17,431 20,537 8,046 3,867 49,881 $141,969 28 Net Income (Loss) $78,040 $106,015 $3,439 -$45,526 29 30 Notes to the financial statements: 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: 31 Cross country ski packages Accessories Parts & Service TOTAL Mountain Bikes Promotes company as a whole 13,000 32 33 34,000 $ 42,000 $ 8,000 7,000 $ 34 35 2. The company uses the straight-line method of depreciation. 36 37 3. The property taxes are set by the City and do not change with changes in sales volume. 38 39 4. Rent has two components: 40 Monthly amount 5,000 Percentage based on each department's 41 sales 3% Notes 1 2 3 4 5 6 7 Parts & Service 104,000 This is my first attempt at the segmented income statement. I think it's safe to say that I need help! 40 Monthly amount Percentage based on each department's 5,000 3% 41 sales 42 43 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. 44 45 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. 46 47 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. 48 $ 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. 49 5 78,000 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 $ 75,000 50 51 52 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 53 7,000 54 8. Interest expense is charged on the outstanding bank loans. The total interest expense is $ 55 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. 57 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. If you are not arriving at the check figures, please discuss with your group members to determine where you went wrong! See the word document provided to your group containing the check figures! 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! Make sure you are using full Excel functionality and entering formulas into each cell. You cannot use your calculator and input the final answer. 58 59 60 Mountain Sports Ltd. 61 Segmented Income Statement-By Product Line Note from Kelly, Junior accountant. The sales and cost of goods sold information is correct so I slotted it in (the owners confirmed that these were correct). As for the rest....that's up to you 59 60 61 62 63 64 65 SALES 623,047 66 Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) 67 Cost of Goods Sold 276,633 68 69 70 71 TOTAL 72 73 Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY 74 75 76 TOTAL Traceable Fixed Costs 77 78 Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY 79 80 81 82 83 84 85 86 87 88 89 Cross Country Ski Packages Amount Percent 100% 44.4% Mountain Sports Ltd. Segmented Income Statement-By Product Line For the Year Ended December 31, 2019 Mountain Bikes Accessories Amount Amount Percent 734,066 341,414 100.0% 287,590 46.5% 72,789 Percent 100.0% 25.3% Parts and Service Department Amount Percent 138,215 26,731 TOTAL Amount 100.0% 1,782,918 19.3% 717,567 Percent 100.0% 40.2% correct so I slotted it in (the owners confirmed that these were correct). As for the rest...that's up to you Note from Instructor: Any figures provided in the statement are check figures. If you do not arrive at these numbers, please revisit and discuss with your group ibility members. It is your group's responsibility to ensure that the check figures match the original check figures provided. 92 Part 2b: Analysis (16 marks) 2. Which product line does the best job of turning sales into profits? 93 (hint: see "SEG" questions in chapter 7 workbook) 94 95 3. 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? 96 97 4. 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 (see percentage below). Calculate the overall decrease in income to the company as a whole if the parts & service department is closed. 98 Decrease in cross country skis and 8% 99 mountain bikes LOO 01 Show all amounts as positive numbers: 02 Contribution Margin Lost: Parts & Service Department 103 Cross Country Skis 104 Mountain Bikes 105 Total CM Lost 06 Fixed Costs Avoided 107 Increase (decrease) in income 108 09 5. 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 the previous part in your response. Do not give textbook answers, use question data! (2 marks) 10 11 12 13 6.Please write a brief memo to the junior accountant explaining the changes you made to the segmented income statement. 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. (5 marks) 14 115 1 Question 2 -Segmented Income Statement & Product line Analysis (41 marks) 2 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 Question 1. However, they want to get a better idea of how each of its' four departments are doing. The junior 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 segmented statement, she has asked 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 corrected segmented income statement and provide recommendations to the owners. 4 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, Sarah, was trying to tell me about common and traceable fixed costs. I didn't understand it, so I just ignored it (keep that between us!). I gave 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 statement below. Oh, the parts & service expense is also correct! 2. I 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's some notes to the segmented income statement below which I think should help you determine how to properly do it....or maybe I did do it properly (hmmm, I'm not sure)? My manager said all of these expenses will stay the same even if any one of the product lines were eliminated. In other words, the company would continue to incur all these costs 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 total salaries and commissions for the other employees and split it equally between cross 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 products in the store). Does that 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 with the common vs. traceable 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 statement properly? Note from Kelly, Junior accountant. 6 7 8 Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 This is my first attempt at the segmented income statement. I think it's safe to say that I need help! 9 7 8 Mountain Sports Ltd. Segmented Income Statement For the Year Ended Dec 31, 2019 9 Cross Country 10 Ski Packages Accessories Mountain Bikes 734,066 11 Sales TOTAL 1,782,918 287,590 138,215 623,047 44% 12 Cost of goods sold % 47% 25% 19% 13 Cost of goods sold 276,633 341,414 72,789 26,731 717,567 14 Gross Profit 346,414 392,652 214,801 111,484 1,065,351 15 Operating expenses 16 Advertising 38,543 47,352 10,097 8,008 104,000 17 Depreciation 5,570 5,570 5,570 5,570 22,280 18 Property taxes 8,620 8,620 0,020 8,620 8,620 34,478 19 Rent 28,372 28,372 28,372 28,372 113,488 20 Parts & service expense 35,625 41,973 16,444 94,042 21 Salaries & commissions 106,639 106,639 106,639 75,000 394,917 22 Utilities 25,824 25,824 25,824 25,824 13 297 103,297 23 Total Operating Expenses 249,193 264,350 201,566 151,393 866,502 KATA 24 Operating income (loss) 150-203 10.000 97,221 128,302 13,235 -39,909 198,849 ANA 25 Interest expense 8 1,750 1,750 1,750 1,750 7,000 26 Income (Loss) before taxes 95,471 126,552 11,485 -41,659 191,849 27 Income tax 26.00% 17,431 20,537 8,046 3,867 49,881 $141,969 28 Net Income (Loss) $78,040 $106,015 $3,439 -$45,526 29 30 Notes to the financial statements: 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: 31 Cross country ski packages Accessories Parts & Service TOTAL Mountain Bikes Promotes company as a whole 13,000 32 33 34,000 $ 42,000 $ 8,000 7,000 $ 34 35 2. The company uses the straight-line method of depreciation. 36 37 3. The property taxes are set by the City and do not change with changes in sales volume. 38 39 4. Rent has two components: 40 Monthly amount 5,000 Percentage based on each department's 41 sales 3% Notes 1 2 3 4 5 6 7 Parts & Service 104,000 This is my first attempt at the segmented income statement. I think it's safe to say that I need help! 40 Monthly amount Percentage based on each department's 5,000 3% 41 sales 42 43 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. 44 45 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. 46 47 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. 48 $ 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. 49 5 78,000 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 $ 75,000 50 51 52 7. Utilities are the same regardless of activity and will not change even if a product line is dropped. 53 7,000 54 8. Interest expense is charged on the outstanding bank loans. The total interest expense is $ 55 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. 57 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. If you are not arriving at the check figures, please discuss with your group members to determine where you went wrong! See the word document provided to your group containing the check figures! 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! Make sure you are using full Excel functionality and entering formulas into each cell. You cannot use your calculator and input the final answer. 58 59 60 Mountain Sports Ltd. 61 Segmented Income Statement-By Product Line Note from Kelly, Junior accountant. The sales and cost of goods sold information is correct so I slotted it in (the owners confirmed that these were correct). As for the rest....that's up to you 59 60 61 62 63 64 65 SALES 623,047 66 Less: Variable Costs (MUST BE LISTED ALPHABETICALLY) 67 Cost of Goods Sold 276,633 68 69 70 71 TOTAL 72 73 Less: Traceable Fixed Costs (MUST BE LISTED ALPHABETICALLY 74 75 76 TOTAL Traceable Fixed Costs 77 78 Less: Common Fixed Costs (MUST BE LISTED ALPHABETICALLY 79 80 81 82 83 84 85 86 87 88 89 Cross Country Ski Packages Amount Percent 100% 44.4% Mountain Sports Ltd. Segmented Income Statement-By Product Line For the Year Ended December 31, 2019 Mountain Bikes Accessories Amount Amount Percent 734,066 341,414 100.0% 287,590 46.5% 72,789 Percent 100.0% 25.3% Parts and Service Department Amount Percent 138,215 26,731 TOTAL Amount 100.0% 1,782,918 19.3% 717,567 Percent 100.0% 40.2% correct so I slotted it in (the owners confirmed that these were correct). As for the rest...that's up to you Note from Instructor: Any figures provided in the statement are check figures. If you do not arrive at these numbers, please revisit and discuss with your group ibility members. It is your group's responsibility to ensure that the check figures match the original check figures provided. 92 Part 2b: Analysis (16 marks) 2. Which product line does the best job of turning sales into profits? 93 (hint: see "SEG" questions in chapter 7 workbook) 94 95 3. 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? 96 97 4. 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 (see percentage below). Calculate the overall decrease in income to the company as a whole if the parts & service department is closed. 98 Decrease in cross country skis and 8% 99 mountain bikes LOO 01 Show all amounts as positive numbers: 02 Contribution Margin Lost: Parts & Service Department 103 Cross Country Skis 104 Mountain Bikes 105 Total CM Lost 06 Fixed Costs Avoided 107 Increase (decrease) in income 108 09 5. 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 the previous part in your response. Do not give textbook answers, use question data! (2 marks) 10 11 12 13 6.Please write a brief memo to the junior accountant explaining the changes you made to the segmented income statement. 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. (5 marks) 14 115