Question

Show-Off, Inc. sells merchandise through three retail outlets—in Las Vegas, Reno, and Sacramento—and operates a general corporate headquarters in Reno. A review of the company’s income statement indicates a record year in terms of sales and profits. Management, though, desires additional insights about the individual stores and has asked that Judson Wyatt, a newly hired intern, prepare a segmented income statement. The following information has been extracted from Show-Off’s accounting records:

• The sales volume, sales price, and purchase price data follow:

	Las Vegas			Reno			Sacramento
Sales volume		37,900	units		41,900	units		46,360	units
Unit selling price	$	27.00		$	25.50		$	23.25
Unit purchase price		12.75			12.75			15.75

• The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs:

	Las Vegas			Reno			Sacramento
Sales commissions		5	%		5	%		5	%
Local advertising	$	17,400		$	37,500		$	99,000
Local property taxes		7,200			3,450			11,700
Sales manager salary		—			—			61,500
Store manager salaries		51,000			67,500			75,000
Other noncontrollable costs		9,600			7,350			35,700

1. Local advertising decisions are made at the store manager level. The sales manager’s salary in Sacramento is determined by the Sacramento store manager; in contrast, store manager salaries are set by Show-Off’s vice president.

• Nontraceable fixed corporate expenses total $333,450.
• The company uses a responsibility accounting system.

Required:

1. Assume the role of Judson Wyatt and prepare a segmented income statement for Show-Off.
2. Identify the probable causes for the poor performance of the weakest store.
3. Which of the following should be reviewed in evaluating the performance of the store manager?

Assume the role of Judson Wyatt and prepare a segmented income statement for Show-Off. (Round your answers to the nearest whole dollar.)

	Show-Off, Inc. Las Vegas Reno Sacramento Variable operating expenses: Total Segment contribution margin Fixed expenses controllable by segment manager: Total Profit margin controllable by segment manager Fixed expenses traceable to segment, but controllable by others: Total Segment profit margin

• Required 1

Identify the probable causes for the poor performance of the weakest store. (Select which of the following statements (is) are true by selecting an "X".)

	The markup on cost of the other two outlets at Las Vegas and Reno is much higher. The store manager's salary is the highest for Sacramento’s in terms of units sold. The return on the outlay of advertising and sales manager's salary is inadequate. The other noncontrollable cost of Sacramento’s outlet is very high compared to that of the outlets at Las Vegas and Reno.

Which of the following should be reviewed in evaluating the performance of the store manager?

	should be reviewed in evaluating the performance of the store manager.

Answer 1

Please find below table useful to compute desired results: -

End results would be as follows: -