PROBLEM 12-44 (75 MINUTES)

1.

SEGMENTED INCOME STATEMENTS: BUCKEYE DEPARTMENT STORES, INC. (IN THOUSANDS)

Segments of Company

Sales revenue .................................................

Variable operating expenses:
Cost of merchandise sold........................
Sales personnelsalaries........................
Sales commissions...................................
Utilities.......................................................
Other..........................................................
Total variable expenses............................
Segment contribution margin........................
Less: Fixed expenses controllable by
segment manager:
Depreciationfurnishings.......................
Computing and billing..............................
Warehouse.................................................
Insurance...................................................
Security......................................................
Total..................................................................
Profit margin controllable by
segment manager.........................................
Less: Fixed expenses, traceable to
segment, but controllable by others:..........
Depreciationbuildings...........................
Property taxes...........................................
Supervisory salaries.................................
Total..................................................................
Profit margin traceable to segment...............
Less: Common fixed expenses......................
Income before taxes.......................................
Less: Income tax expense..............................
Net income.......................................................

Buckeye
Department
Stores, Inc.
$118,200

Segments of Columbus Division

Cleveland
Division
$63,000

Columbus
Division
$55,200

Olentangy
Store
$15,000

$ 69,000
9,150
1,140
1,770
1,395
$ 82,455
$ 35,745

$36,000
4,800
600
900
750
$43,050
$19,950

$33,000
4,350
540
870
645
$39,405
$15,795

$ 9,000
1,200
150
240
180
$10,770
$ 4,230

$6,000
900
120
180
105
$7,305
$ (105)

$18,000
2,250
270
450
360
$21,330
$11,670

$ 1,680
1,215
2,340
1,065
1,050
$ 7,350

870
630*
1,350
600
630
$ 4,080

810
585
990
465
420
$ 3,270

240
120
210
120
90
780

$ 150
90
180
75
90
$ 585

$ 28,395

$15,870

$12,525

$ 3,450

$(690)

$ 2,790
915
5,250
$ 8,955
$ 19,440
360
$ 19,080
5,850
$ 13,230

$ 1,410
510
3,000
$ 4,920
$10,950

$ 1,380
405
2,250
$ 4,035
$ 8,490

360
105
450
$ 915
$ 2,535

*$630 = $480 listed in table + $150 not allocated. $3,000 = $2,700 listed in table + $300 not allocated.

Scioto
Store
$7,200

$ 270
60
300
$ 630
$(1,320)

Downtown
Store
$33,000

Not Allocated

420
225
600
270
240
$ 1,755

_____
$150

$ 9,915

(150)

750
240
1,200
$ 2,190
$ 7,725

150

$300
$300
$(450)

PROBLEM 12-44 (CONTINUED)

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.

PROBLEM 12-47 (45 MINUTES)

Memorandum
Date:

Today

To:

Mathew Basler, President of Ujvari Equipment Company

From:

I. M. Student

Subject: Responsibility-Accounting System

Ujvari Equipment Company's critical success factors are as follows:
1.

Cost-efficient production: The firm must meet the market price, which implies
producing in a cost-efficient manner.

2.

High product quality: Stated by the company president as necessary for success.

3.

On-time delivery: Also noted by the company president as critical to the firm's success.

Note that the product price is not a critical success factor, since it is largely beyond the
company's control. The price is determined by the market.
A responsibility-accounting system in which the plants are profit centers is consistent
with achieving high performance on the firm's critical success factors. The plant managers
are in the best position to influence production cost control, product quality, and on-time
delivery.
The sales districts should be revenue centers, in which the sales district managers are
accountable for meeting sales projections.
Suppose the plants are cost centers and the sales districts are revenue centers. When
a rush order comes in, the plant manager's incentive is to reject it because rush orders tend
to increase production costs (due to increased setups, interrupted production, etc.). The
sales district manager's incentive is to push rush orders, because accepting a rush order
results in a satisfied customer and increased future business. Thus, there is a built-in
conflict between the plant managers and the sales district managers.

PROBLEM 12-47 (CONTINUED)

If the plants are profit centers, then each plant manager is encouraged to consider both
the costs and the benefits of a rush order. The cost is increased production cost, and the
benefit is a satisfied customer. Since the plant manager is rewarded for achieving a profit,
he or she has an incentive to weigh the cost-benefit trade-off inherent to the rush-order
problem.
In conclusion, I recommend that the plants be designated as profit centers and the
sales districts be designated as revenue centers.