Segmented income statements are used to show revenues, expenses, and income for major parts of an organization.Required: A. Consider a regional chain of department stores that has two or three stores in each of several cities. One way to segment this business is geographically. Describe another way of segmenting the firm.B. Segmented income statements often distinguish between "fixed expenses controllable by the segment manager" and "fixed expenses traceable to the segment, but controllable by others." Assume that the Cleveland district has three retail stores. Give two examples of each type of fixed cost.C. Common costs create difficulties when preparing segmented income statements. Define "common costs," give an example for the regional chain of department stores, and explain in
general terms why such costs create a problem.
What will be an ideal response?
A. Other possible segments:
· product lines (women's clothing, men's clothing, housewares, etc.)
· demographic characteristics of customer (gender, use of cash or credit card, approximate age, etc.)
B. Fixed expenses controllable by the Cleveland regional manager include:
· regional advertising
· contracts for maintenance of local facilities such as snowplowing, landscaping, routine building maintenance
· utilities (controllable to some extent at the individual store level)
· salaries (within limits set by upper management)
Fixed expenses traceable to the segment, but controllable by others include:
· salary of the regional manager
· building depreciation (assuming the regional manager does not have authority to close or open stores)
· corporate charges for services such as legal and accounting, MIS, central purchasing, etc.
· debt-service costs on funds used to acquire (build) the stores
C. Common costs are costs incurred to benefit more than one segment. Frequently, there is no cause/effect relationship regarding the size of these costs and the segments nor are such costs easily traceable to the segments. Examples include salaries of top corporate officials and costs of the corporate headquarters.
You might also like to view...
When gross margin pricing is used, the markup percentage includes
a. desired profits plus total selling, general, and administrative expenses. b. only the desired profit factor. c. total costs and expenses. d. desired profits plus total fixed production costs plus total selling, general, and administrative expenses.
List the general guidelines for constructing pie charts
Katherine wants to illustrate how her company's sales have increased over the past five years. She should use a pie chart to do this
Indicate whether the statement is true or false
Joel's car broke down on a dark, rainy night. Along came Andy in his four-wheel drive truck with tools and supplies in the back. Joel didn't have any credit cards and had only $3.25 cash, so Andy told him to write a check or an IOU. Neither Andy nor Joel had any paper, so Joel wrote on the cover of Andy's lunchbox: "If my car is fixed right by Andy Walcott, I will pay him $150. (Signed) Joel
Boyd." Andy indorses the note and takes it to a bank for negotiation. The bank refuses, saying it is non-negotiable because: A) it is written on a lunchbox. B) it mentions the existence of a contract to repair the car. C) it is conditional on satisfactory repair of the car. D) Andy does not have a photo ID.