Question

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 Columbus Division Cleveland Division Olentangy Store Scioto Store Downtown Store Individual Stores

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	$	8,000		$	2,600		$	14,000			$	20,000
Variable expenses:
Cost of merchandise sold		5,000			2,200			7,000				13,000
Sales personnel—salaries		600			310			760				1,600
Sales commissions		70			40			110				240
Utilities		90			60			190				350
Other		60			35			160				290
Fixed expenses:
Depreciation—buildings		120			110			260				510
Depreciation—furnishings		80			50			180				330
Computing and billing		40			50			85				200
Warehouse		70			60			230				490
Insurance		40			25			110				240
Property taxes		35			20			100				210
Supervisory salaries		160			130			440				930
Security		50			50			100				250

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 $50,000 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 $150,000, which are not allocated to individual stores.

Buckeye Department Stores incurs common fixed expenses of $160,000, which are not allocated to the two divisions. Income-tax expense for 20x1 is $1,880,000.

Required:

1. Prepare a segmented income statement for Buckeye Department Stores, Inc.
2. How would the segmented income statement help the president of Buckeye Department Stores manage the company?

   Segments of Company Segments of Columbus Division Buckeye Department Stores, Inc. Cleveland Division Columbus Division Olentangy Store Scioto Store Downtown Store Not Allocated Variable operating expenses: Total variable expenses $0 $0 $0 $0 $0 $0 $0 Segment contribution margin $0 $0 $0 $0 $0 $0 $0 Fixed expenses controllable by segment manager: Total $0 $0 $0 $0 $0 $0 $0 Profit margin controllable by segment manager $0 $0 $0 $0 $0 $0 $0 Fixed expenses, traceable to segment, but controllable by others: Total $0 $0 $0 $0 $0 $0 $0 Profit mar

Answer 1

1)		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:	44,600	20,000	24,600	8,000	2,600	14,000	0
Variable operating expenses:
Cost of merchandise sold	27,200	13,000	14,200	5,000	2,200	7,000
Sales personnel—salaries	3,270	1,600	1,670	600	310	760
Sales commissions	460	240	220	70	40	110
Utilities	690	350	340	90	60	190
Other	545	290	255	60	35	160
Total variable expenses	32,165	15,480	16,685	5,820	2,645	8,220
Segment contribution margin	12,435	4,520	7,915	2,180	-45	5,780
Fixed expenses controllable by segment manager:
Depreciation—furnishings	815	330	485	80	50	180
Computing and billing	735	200	535	40	50	85	50
Warehouse	1025	490	535	70	60	230
Insurance	615	240	375	40	25	110
Security	1670	250	1420	50	50	100
Total	4860	1510	3350	280	235	705	50
Profit margin controllable by segment manager	7,575	3,010	4,565	1,900	-280	5,075	-50
Fixed expenses, traceable to segment, but controllable by others:
Depreciation—buildings	1000	510	490	120	110	260
Property taxes	365	210	155	35	20	100
Supervisory salaries	1660	930	730	160	130	440	150
Total	3025	1650	1375	315	260	800	150
Profit margin traceable to segment	4,550	1,360	3,190	1,585	-540	4,275	100
Less: Common fixed expenses	160
Income before taxes	4,390
Less: Income tax expense	1880
Net income	2,510
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.