Piedmont Novelties, Inc., sells merchandise through three retail outletsâ€”in Raleigh, Charlotte, and Savannahâ€”and operates a general corporate headquarters in Charlotte. A review of the companyâ€™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 Piedmontâ€™s accounting records:
â€¢ Sales volume, sales price, and purchase price data:
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â€¢ The following expenses were incurred for sales commissions, local advertising, property taxes,
management salaries, and other noncontrollable (but traceable) costs:
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Local advertising decisions are made at the store manager level. The sales managerâ€™s salary in
Savannah is determined by the Savannah store manager; in contrast, store manager salaries are set by Piedmont Noveltiesâ€™s vice president.
â€¢ Nontraceable fixed corporate expenses total $288,450.
â€¢ The company uses a responsibility accounting system.
1. Assume the role of Judson Wyatt and prepare a segmented income statement for Piedmont.
2. Determine the weakest-performing store and present an analysis of the probable causes of poor performance.
3. Assume that an opening has arisen at the Charlotte corporate headquarters and the companyâ€™s chief executive officer (CEO) desires to promote one of the three existing store managers. In evaluating the store managersâ€™ performance, should the CEO use a storeâ€™s segment contribution margin, the profit margin controllable by the store manager, or a storeâ€™s segment profit margin? Justify your answer.