- Question 1 Cost Classifications Cvp Income Statement Analysis 27 Marks Note From Kelly The Junior Accountant Hi 1 (66.58 KiB) Viewed 12 times
- Question 1 Cost Classifications Cvp Income Statement Analysis 27 Marks Note From Kelly The Junior Accountant Hi 2 (50.39 KiB) Viewed 12 times
- Question 1 Cost Classifications Cvp Income Statement Analysis 27 Marks Note From Kelly The Junior Accountant Hi 3 (25.17 KiB) Viewed 12 times
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 there 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 Sales Cost of goods sold Gross margin Operating expenses: (See notes) Advertising Depreciation Property taxes Rent Parts & service expenses Salaries and commissions Utilities Total operating expenses Operating income Interest expenses Income before taxes Income taxes Net income 1,782,918 217.567 1.065,351 104,000 22,280 34,478 113,488 94,042 394,917 103,297 866.502 198,849 7.000 191,849 49.881 141,969 Part A: Cost Classification (Chapter 2, 6) (5 marks) Required: Classify each of the below operating expenses as variable or fixed. Cost 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 I below for sales for each segment). Monthly Salaries Commission as a percentage of sales Rent components: Monthly Percentage of sales 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. Sales To be calculated by the group 11% 5,000 3% Note 1: Sales by Segment (taken from Q2 segmented income
statement) Cross Country Ski Packages Mountain Bikes 734,066 623,047 Accessories 287,590 Variable or Fixed Parts & Service 138,215
Part B: CVP Income
Statement (Chapter 6) (13 marks) 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! Sales Total variable costs Mountain Sports Ltd. Contribution Margin Income
Statement For the Year Ended Dec 31, 2019 TOTAL Less: Variable Costs (must be listed in alphabetical order): $1,782,918 TOTAL Less: Fixed Costs (must be listed in alphabetical order) Advertising PERCENT 100%
Part C: CVF Analysis (Chapter 6) (9 marks) Calculate the following and explain each calculation (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 awarded for textbook definitions Explanation 1) Breakeven Point in Sales Dollars 2) Margin of Safety (In percent) 3) Degree of Operating Leverage (DOL) (eperating income to be used in calculation) 4) The junior accountant left a note for you: In the managerial accounting course that I took I learned that degree of operating leverage is a measure of risk I don't really understand that Can you help me? What does leverage mean? Is it better to have high leverage or low leverage? The owners have asked me if they should focus more on variable costs or fixed costs, what should I say? They expect that sales will increase next year Calculation NA no calculations ncoded