Buckeye Department Stores, Inc. operates a chain of department stores in Ohio. T

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 Stores BUCKEYE DEPARTMENT STORES, INC. Operating Data for 20x1 in thousands) olumbus Division Cleveland Division (total for all stores) Olentangy Store Scioto Store Downtown Store 7,000 $2,900 $16,000 $ 23,000 Sales revenue Variable expenses: 4,000 700 50 2,500 Cost of merchandise sold Sales personnel-salaries Sales commissions Utilities Other 6,000 730 100 170 140 16,000 1,400 250 70 300 Fixed expenses 100 Depreciation-buildings Depreciation-furnishings Computing and billing Warehouse Insurance Property taxes Supervisory salaries Security 240 160 85 210 100 120 490 340 210 470 250 220 930 260 50 45 160 30 120 30 420 90 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 $110,000, which are not allocated to individual stores. Buckeye Department Stores incurs common fixed expenses of $120,000, which are not allocated to the two divisions. Income-tax expense for 20x1 is $2,900,000 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?

Explanation / Answer

The segmented income statement helps in better managing the company as it indicates the various costs which are controllable at each segment manager's level and those that are controllable by others thereby assessing the performance of the managers. It also shows the segment margin which helps in identifying the loss making segments which may be focused on and decision of continuing the same made.

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 48900 23000 25900 7000 2900 16000 0 Variable operating expenses: Cost of merchandise sold 28500 16000 12500 4000 2500 6000 Sales personnel-salaries 3170 1400 1770 700 340 730 Sales commissions 440 250 190 50 40 100 Utilities 610 300 310 80 60 170 Other 565 300 265 70 55 140 Total variable expenses 33285 18250 15035 4900 2995 7140 0 Segment contribution margin 15615 4750 10865 2100 -95 8860 0 Fixed expenses controllable by segment manager: Depreciation-furnishings 620 340 280 60 60 160 Computing and billing 425 210 215 60 30 85 40 Warehouse 790 470 320 50 60 210 Insurance 455 250 205 60 45 100 Security 410 260 150 30 30 90 Total 2700 1530 1170 260 225 645 40 Profit margin controllable by segment manager 12915 3220 9695 1840 -320 8215 -40 Fixed expenses, traceable to segment, but controllable by others: Depreciation-buildings 950 490 460 120 100 240 Property taxes 405 220 185 55 40 90 Supervisory salaries 1740 930 810 160 120 420 110 Total 3095 1640 1455 335 260 750 110 Profit margin traceable to segment 9820 1580 8240 1505 -580 7465 -150 Common fixed expenses 120 Income before taxes 9700 Income tax expense 2900 Net income 6800

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