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G Question 1: Cost Classifications, CVP Income Statement & Analysis (27 marks) Note from Kelly, the junior accountant: there! Welcome to the team. I'm Kelly the junior accountant here at Mountain Sports /'ve been working with the company for while now helping out with the bookline My mom is one of the owners. Anyway, I am quite comfortable with preparing a traditional income statement this was the income statement framed to prepare an account Mowever, the new interested in quite a few CVP concepts. Anarned about these in my introductory managerial accounting course be while. Could you becomity each of the operating expenses as variable or hud expenses (Part A below!? After that, I think it would be here to prepare a Pincome statement Portal) se that the other concepts break, margin of safety etc) can be calculated Part). My mom thought it would be a great idea to present there cautation along with detailed station to the owners since three of the owners aren't actively involved in the day to day operations of the business. Os sold tell you the owners do not have an accounting bacipoond so Love to explain those CVP concepts in a way that they can understand. Thanks so much for your help! 2 Mountain Sportstd. Income Statement For the Year Ended Dec 31, 2019 Part A Cost Classification (Chapter 2,65 marka 9 10 Sales 1,862 900 Required: Classify each of the below operating expenses as variable or fixed. Variable or Feed 11 Cost of goods sold 12 Gross margin 720,814 1,122 087 Cost Cast of goods sold increases proportionately with sales Employees are paided monthly salaries supplemented by a commission on all sales except for the Parts & Service department's sales free note 1 below for sales for each segment). 115 36 4000 Rent 11 Operating expenses: See notes) Advertising 15 Depreciation Property taxes 17 Parts & service expenses 19 Salaries and commissions 20 Utilities 21 Total operating expenses 22 Operating income 97,000 22,360 37,916 85,258 94,349 405,820 101,510 844 219 277868 Monty Salaries To be calculated by the group Commission as a percentage of sales Rent components Monthly Percentage of sales 2 Utilities costs incurred are independent of sales volume they will not changed sales volume Parts and Service expense ties 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 18 3 04 05 06 0 The property taxes are set by the City and do not chance with a whime Advertising budgets are committed to at the beginning of each ye >> Operating income interest expenses 24 Income before taxes 225 Income taxes 26. Net income 27 28 29 JO 277,868 6,000 271,868 70.656 2011 Note 1: Sales by Segment (taken from O2 semented income statement) Cross Country Ski Packages Mountain Bikes Accessories Parts & Service Sales 655,022 733567 206.16 128118 Part 8: CVP Income Statement (Chapter 61 (13 marks) Prepare a contribution margin income statement (belowusing the traditional income statement provided and the cost information provided in Part A Check figures have been provided to ensure you are on the right track. See the word document provided to your group 3 33 33 34 Mountain Sports Ltd Contribution Martin Income Statement Note from instructor Alform completed within the answer Post Prepare a contribution margin income statement (below), using the traditional income statement provided and the cost information provided in Part A Check figures have been provided to ensure you are on the right track. See the word document provided to your group! Mountain Sports Ltd Contribution Margin Income Statement For the Year Ended Dec 31, 2019 Note from Instructor: All formulas must be completed within the answer boxes. Do not use a calculator and input the final answer. It will result in rounding errors and you will be marked as incorrect. This is applicable for all calculations in the case study. TOTAL PERCENT Sales $1,862,901 100% Less: Variable Costs (must be listed in alphabetical order) Note from Instructor: You will be marked as Incorrect if you do not follow instructions! Please read carefully! 1 2 03 14 05 06 + G Less: Variable Costs must be listed in alphabetical orders Note from instructor: You will be marked as incorrect if you do not follow instructions! Please read carefully! Total variable costs Less: Fixed Costs (must be listed in alphabetical order) Advertising D E G H Less: Fixed Costs (must be listed in alphabetical order) Advertising TOTAL Part C. CVP Analysis (Chapter 6) (9 marks) Calculate the following and explain each cakulation in your own words). Be sure to explain what the number you've calculated means, ensuring you write it in a way so that a non-accountant can understand. For example. If you calculate a breakeven point of $1,000, what does $1,000 mean? Marks will not be Calculation tuplanation 1.) Breakevens Point in Sales Dollars Note from se of the the formatting the web may need to but agais plus 6 2) Margin of Safety in percent) a sininen 3) Degree of Operating Leverage (000) (operating income to be used in calculation N/A calculations 4) The junior accountant lett a note for you in the managerial accounting course that took I learned that degree of operating leverage is a measure of wish I don't really understand that can you help me? What does leverage means it better to have high leverer or low leverage? The owners are asked me if they should focus more on variable costs or fixed costs, what should say? They expect that sales will increase next year needed 0