Question

Piedmont Novelties, Inc., sells merchandise through three retail outlets—in Raleigh, Charlotte, and Savannah—and operates a general corporate headquarters in Charlotte. 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 Piedmont’s accounting records:
• Sales volume, sales price, and purchase price data:


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


Local advertising decisions are made at the store manager level. The sales manager’s salary in Savannah is determined by the Savannah store manager; in contrast, store manager salaries are set by Piedmont Novelties’s vice president.
• Nontraceable fixed corporate expenses total $288,450.
• The company uses a responsibility accounting system.

Required:
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 company’s chief executive officer (CEO) desires to promote one of the three existing store managers. In evaluating the store managers’ performance, should the CEO use a store’s segment contribution margin, the profit margin controllable by the store manager, or a store’s segment profit margin? Justify youranswer.


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  • CreatedApril 22, 2014
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