Soccer Ball Inc., Soccer Ball Inc., a manufacturer of youth soccer balls, prepar
ID: 2581634 • Letter: S
Question
Soccer Ball Inc.,
Soccer Ball Inc., a manufacturer of youth soccer balls, prepared the income statement for the year ended December 31, 2016 (see Exhibit 1):
1
Exhibit 1
Income Statement
Sales (1888,000 units)
$9,440,000
Cost of sales
5,664,000
Gross margin
$3,776,000
Delivery costs
Containers
$182,000
Packing and Shipping Labor
$438,000
Freight
$800,000
$1,420,000
Selling Costs
Sales Manager
$60,000
Sales Salaries
$90,000
Commissions
$80,000
Sports Consortium Commissions
$70,000
Bad Debts
$30,000
$330,000
Advertising
Educational Media
$120,000
Sport Industry Media
$90,000
$210,000
General Business Support
$150,000
Operating Profit
$1,666,000
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 $5. The cost of sales is all variable.
Large public and private schools receive advertising through educational media, and place orders directly to the manufacturing plant. 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 plant to pick up orders when they are ready.
Smaller private schools located with 100 mile radius of then plant are visited by salesmen. These salesmen are paid commissions, and are not company employees.
Sporting goods stores within a 400 miles radius of the plant are visited by 4 salesmen who are company employees and are paid a salary.
Children’s sports teams within 600 miles radius of the plant 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 and his work benefits all segments based on their volume of activity. General business support
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.
In addition, delivery freight is charged to Soccer Inc., based on the number of containers shipped and delivery miles.
During 2016, an analysis of the marketing operations was made. Exhibit 3 shows the results of that analysis.
2
Exhibit 2
Small
Medium
Large
Container
$2
$3
$4
Packing & shipping labor
$6
$7
$8
Exhibit 3
Total
Large schools
Small Private Schools
Sporting Goods Stores
Sports Team Sales
Number of orders
Small Cases
22000
4000
18000
Medium Cases
30000
8000
5000
15000
2000
Large Cases
12000
7000
5000
Provision for uncollectible accounts as % of sales
0.30%
0.15%
0.40%
0.268%
Required
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 plant is appropriate) 80 points
Prepare a partial statement showing the gross profit (sales less cost of goods sold) of each container size of balls sold. 20 points
Exhibit 1
Income Statement
Sales (1888,000 units)
$9,440,000
Cost of sales
5,664,000
Gross margin
$3,776,000
Delivery costs
Containers
$182,000
Packing and Shipping Labor
$438,000
Freight
$800,000
$1,420,000
Selling Costs
Sales Manager
$60,000
Sales Salaries
$90,000
Commissions
$80,000
Sports Consortium Commissions
$70,000
Bad Debts
$30,000
$330,000
Advertising
Educational Media
$120,000
Sport Industry Media
$90,000
$210,000
General Business Support
$150,000
Operating Profit
$1,666,000
Explanation / Answer
statement of each type of sales made is as under: in units
Profitability statement for each sales:
182000
Some incomplete information about General Business support expense
Particulars Large Schools Small Private Schools Sporting Goods Stores Sports Team Sales Total Sales: Small 4000 18000 22000 (16 per case) 64000 288000 352000 Medium 8000 5000 15000 2000 30000 ( 32 per case) 256000 160000 480000 64000 960000 Large 7000 5000 12000 (48 per case) 336000 240000 576000 Total units 592000 224000 768000 304000 1888000Related Questions
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