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.

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