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.

 

   

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	$ 25,000	$ 17,600		$ 5,000	$ 2,600	$ 10,000
Variable operating expenses:
Cost of merchandise sold	$ 21,200	$ 11,000	$ 10,200		$ 3,000	$ 2,200	$ 5,000
Sales personnel—salaries	3080	1,500	1,580		500	330	750
Sales commissions	420	230	190		60	50	80
Utilities	640	310	330		80	70	180
Other	525	280	245		70	25	150
Total variable expenses	$ 25,865	$ 13,320	$ 12,545		$ 3,710	$ 2,675	$ 6,160
Segment contribution margin	$ 16,735	$ 11,680	$ 5,055		$ 1,290	$ -75	$ 3,840
Less: Fixed expenses controllable            by segment manager:
Depreciation—furnishings	$ 600	$ 320	$ 280		$ 70	$ 40	$ 170
Computing and billing	435	230	205		30	40	95	40
Warehouse	780	450	330		60	70	200
Insurance	375	230	145		30	35	80
Security	390	240	150		40	40	70
Total	$ 2,580	$ 1,470	$ 1,110		$ 230	$ 225	$ 615	$ 40
Profit margin controllable   by segment manager	$ 14,155	$ 10,210	3,945		1,060	-300	3,225	-40
Less: Fixed expenses, traceable            to segment, but controllable            by others:
Depreciation—buildings	$ 960	$ 470	$ 490		$ 160	$ 80	$ 250
Property taxes	325	200	125		25	30	70
Supervisory salaries	1,880	1,080	800		150	120	400	130
Total	$ 3,165	$ 1,750	$ 1,415		$ 335	$ 230	$ 720	$ 130
Profit margin traceable to segment	$ 10,990	8,460	2,530		725	-530	2,505	$ -170
Less: Common fixed expenses	130
Income before taxes	$ 10,860
Less: Income tax expense	1,980
Net income	$ 8,880

  

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.

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.