Read the case Elite Classic Clothes and fulfill the below requirements:

1. Prepare the May segmented income statement for the Coastal District and for the New Haven and Boston stores.

2. Compute the Portland store's operating income for May.

3. Discuss the impact of the responsibility-accounting system and bonus structure on the managers' behavior and the effect of their behavior on the financial results for the New Haven store and the Boston store.

4. The assistant controller for the New England Region, Jack Isner, has been a close friend of the New Haven store manager for over 20 years. When Isner saw the segmented income statement [as prepared in requirement (1)], he realized that the New Haven store manager had really gone overboard on advertising expenditures. To make his friend look better to the regional management, he reclassified $50,000 of the advertising expenditures as miscellaneous expenses, and buried them in rent and other costs. Comment on the ethical issues in the assistant controller's actions.

Answer rating: 100% (QA)

1 To prepare the May segmented income statements we precede using the following steps a Deduct the variable expenses of the segments of the company from their sales to derive the segment contribution ... View the full answer