Soccer Ball Inc., a manufacturer of youth soccer balls, prepared the income stat

Question

Soccer Ball Inc., a manufacturer of youth soccer balls, prepared the income statement for the year ended
December 31, 2016 (see Exhibit 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.
2
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.
Exhibit 2
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 2016, an analysis of the marketing operations was made. Exhibit 3 shows the results of that
analysis.
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
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 plant is appropriate) 80 points
2. Prepare a partial statement showing the gross profit (sales less cost of goods sold) of each
container size of balls sold. 20 points

**** Can you show calculations***

Explanation / Answer

Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time.

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