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Saturday, 2 November 2013

Buckeye Department Stores, Inc. operates a chain of department stores in Ohio. The company’s organization chart appears below. Operating data for 20x1 follow.

Buckeye Department Stores, Inc. operates a chain of department stores in Ohio. The company’s organization chart appears below. Operating data for 20x1 follow.
 
Picture
   
BUCKEYE DEPARTMENT STORES, INC.
Operating Data for 20x1
(in thousands)

Columbus Division



  





Olentangy
Store
Scioto
Store
Downtown
Store
Cleveland Division
(total for all stores)
  Sales revenue
$
5,000

$
2,600

$
10,000

$
25,000

  Variable expenses:












     Cost of merchandise sold

3,000


2,200


5,000


11,000

     Sales personnel—salaries

500


330


750


1,500

     Sales commissions

60


50


80


230

     Utilities

80


70


180


310

     Other

70


25


150


280

  Fixed expenses:












     Depreciation—buildings

160


80


250


470

     Depreciation—furnishings

70


40


170


320

     Computing and billing

30


40


95


190

     Warehouse

60


70


200


450

     Insurance

30


35


80


230

     Property taxes

25


30


70


200

     Supervisory salaries

150


120


400


950

     Security

40


40


70


240


  
     The following fixed expenses are controllable at the divisional level: depreciation—furnishings, computing and billing, warehouse, insurance, and security. In addition to these expenses, each division annually incurs $40,000 of computing costs, which are not allocated to individual stores.
  
    The following fixed expenses are controllable only at the company level: depreciation—building, property taxes, and supervisory salaries. In addition to these expenses, each division incurs costs for supervisory salaries of $130,000, which are not allocated to individual stores.
  
    Buckeye Department Stores incurs common fixed expenses of $130,000, which are not allocated to the two divisions. Income-tax expense for 20x1 is $1,980,000.
  
Required:

1.
Prepare a segmented income statement for Buckeye Department Stores, Inc. (Enter your answers in thousands. Input all amounts as positive values except losses which should be indicated by minus sign. Omit the "$" sign in your response.)
  


Segments of Company

Segments of Columbus Division
  





Buckeye
Department
Stores, Inc.
Cleveland
Division
Columbus
Division

Olentangy
Store
Scioto
Store
Downtown
Store
Not
Allocated
  Sales revenue
$ 42,600 correct   
$ 25,000 correct   
$ 17,600 correct   

$ 5,000 correct   
$ 2,600 correct   
$ 10,000 correct   

  Variable operating expenses:








     Cost of merchandise sold
$ 21,200 correct   
$ 11,000 correct   
$ 10,200 correct   

$ 3,000 correct   
$ 2,200 correct   
$ 5,000 correct   

     Sales personnel—salaries
3080 correct   
1,500 correct   
1,580 correct   

500 correct   
330 correct   
750 correct   

     Sales commissions
420 correct   
230 correct   
190 correct   

60 correct   
50 correct   
80 correct   

     Utilities
640 correct   
310 correct   
330 correct   

80 correct   
70 correct   
180 correct   

     Other
525 correct   
280 correct   
245 correct   

70 correct   
25 correct   
150 correct   

  








     Total variable expenses
$ 25,865 correct   
$ 13,320 correct   
$ 12,545 correct   

$ 3,710 correct   
$ 2,675 correct   
$ 6,160 correct   

  








  Segment contribution margin
$ 16,735 correct   
$ 11,680 correct   
$ 5,055 correct   

$ 1,290 correct   
$ -75 correct   
$ 3,840 correct   

  








  Less: Fixed expenses controllable
           by segment manager:








     Depreciation—furnishings
$ 600 correct   
$ 320 correct   
$ 280 correct   

$ 70 correct   
$ 40 correct   
$ 170 correct   

     Computing and billing
435 correct   
230 correct   
205 correct   

30 correct   
40 correct   
95 correct   
40 correct  
      Warehouse
780 correct   
450 correct   
330 correct   

60 correct   
70 correct   
200 correct   

      Insurance
375 correct   
230 correct   
145 correct   

30 correct   
35 correct   
80 correct   

     Security
390 correct   
240 correct   
150 correct   

40 correct   
40 correct   
70 correct   

  








  Total
$ 2,580 correct   
$ 1,470 correct   
$ 1,110 correct   

$ 230 correct   
$ 225 correct   
$ 615 correct   
$ 40 correct  
  








  Profit margin controllable
  by segment manager
$ 14,155 correct   
$ 10,210 correct   
3,945 correct   

1,060 correct   
-300 correct   
3,225 correct   
-40 correct  
  








  Less: Fixed expenses, traceable
           to segment, but controllable
           by others:








     Depreciation—buildings
$ 960 correct   
$ 470 correct   
$ 490 correct   

$ 160 correct   
$ 80 correct   
$ 250 correct   

     Property taxes
325 correct   
200 correct   
125 correct   

25 correct   
30 correct   
70 correct   

     Supervisory salaries
1,880 correct   
1,080 correct   
800 correct   

150 correct   
120 correct   
400 correct   
130 correct  
  








  Total
$ 3,165 correct   
$ 1,750 correct   
$ 1,415 correct   

$ 335 correct   
$ 230 correct   
$ 720 correct   
$ 130 correct  
  








  Profit margin traceable to segment
$ 10,990 correct   
8,460 correct   
2,530 correct   

725 correct   
-530 correct   
2,505 correct   
$ -170 correct  
  Less: Common fixed expenses
130 correct   













    








  Income before taxes
$ 10,860 correct   







  Less: Income tax expense
1,980 correct   







  








  Net income
$ 8,880 correct   







  










  
2.
How would the segmented income statement help the president of Buckeye Department Stores manage the company?
  


It would help to gain insight into the performance of the individual stores and their divisions. correct
Explanation:
1. (amounts in thousands):
Computing and billing (Cleveland Division) : $230 = $190 listed in table + $40 not allocated.
Supervisory salaries (Cleveland Division) : $1,080 = $950 listed in table + $130 not allocated.
 
2. 
The segmented income statement would help the president of Buckeye Department Stores gain insight into which division and which individual stores are performing well or having difficulty. Such information serves to direct management's attention to areas where its expertise is needed.