Soccer Ball Inc., a wholesaler of youth soccer balls, prepared the income statement for the year ended December 31, 2015 (see Exhibit 1)
| Exhibit 1 |
|
|
| |
|
Income Statement |
| Sales ( 1,760,000 units) |
|
$10,560,000 |
| Cost of sales |
|
$6,336,000 |
| Gross margin |
|
$4,224,000 |
| Delivery costs |
|
|
| Container |
$170,000 |
|
| Packing and Shipping Labor |
$410,000 |
|
| Freigh |
$800,000 |
$1,380,000 |
| Selling Costs |
|
|
| Sales Manage |
$50,000 |
|
| Sales Salarie |
$90,000 |
|
| Commission |
$80,000 |
|
| Sports Consortium Commissions |
$70,000 |
|
| Bad Deb |
$37,248 |
$327,248 |
| Advertising |
|
|
| Educational Media |
$100,000 |
|
| Sport Industry Media |
$85,000 |
|
| |
|
$185,000 |
| General Business Support |
|
$140,000 |
| Operating Profit |
|
$2,191,752 |
The company sells soccer balls to schools, children's sports teams, and sporting goods stores which represents 4 segments. The selling price per unit is $ 6. Costs of sales are variable costs.
Large public and private schools receive advertising through educational media, and place orders directly to Soccer ball Inc. No sales Staff calls are made. Orders are received through the mail, fax, telephone or by computer. School districts arrange for their own delivery and send a truck to the wholesaler to pick up orders when they are ready.
Smaller private schools located with 100 mile radius of the wholesaler are visited by salesmen. These salesmen are paid commissions, and are not company employees.
Sporting goods stores within a 400 miles radius of the wholesaler are visited by 4 salesmen who are company employees and are paid a salary.
Children's sports teams within 600 miles radius of the wholesaler are contacted through a sports consortium which sells to leagues. Advertising is done through sports industry media. The cost of that advertising is shared 50/50 with the sports consortium. The sports consortium receives a commission on their sales.
The Sales manager oversees the sales to all segments.
Soccer balls are sold in containers of three (3) different sizes: namely, 16's (small), 32's (medium), and 48's (large). Each order is comprised of a cases lot of o appropriate containers. The units associated with the packaging each case are depicted in Exhibit 2.
| Exhibit 2 |
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|
|
| |
Small |
Medium |
Large |
| Container |
$2 |
$3 |
$4 |
| Packing & shipping labor |
$6 |
$7 |
$8 |
In addition, delivery freight is charged to Soccer Inc., based on the number of containers shipped and delivery miles.
During 2015, an analysis of the marketing operations was made. Exhibit 3 shows the results of that analysis.
| Exhibit 3 |
|
|
|
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| Number of orders |
Total |
Large schools |
Small Private Schools |
Sporting Goods Stores |
Sports Team Sales |
| Small Cases |
20000 |
|
|
|
|
| Medium Cases |
30000 |
8000 |
4000 |
16000 |
2000 |
| Large Cases |
10000 |
7000 |
5000 |
15000 |
3000 |
| Provision for Uncollectible |
|
|
|
|
|
| |
0.30% |
0.20% |
0.40% |
0.50% |
Required
1. Prepare a statement showing the profitability of each type of sales (i.e., large schools, small private schools, sporting goods stores, and sports team sales). Prepare supporting schedules to show the allocation of cost items. Describe the basis on which costs were assigned or allocated to
each. (Hint: freight costs are charged based on the number of containers shipped and miles driven. To allocate freight costs to customers the number of containers times the number of miles radius of the Wholesaler is appropriate)
2. Prepare a statement showing the gross profit (sales less cost of goods sold) of each container size of balls sold.