Problem 12-44 Segmented Income Statement; Responsibility Accounting (LO 12-3, 12-5)

Show-Off, Inc., sells merchandise through three retail outletsin Las Vegas, Reno, and Sacramentoand operates a general corporate headquarters in Reno. A review of the companys 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-Offs accounting records:

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

	Las Vegas				Reno				Sacramento
Sales volume		38,600	units			42,600	units			46,640	units
Unit selling price	$	34.00			$	32.50			$	30.25
Unit purchase price		16.25				16.25				21.00

• 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		8	%			8	%			8	%
Local advertising	$	18,100			$	41,000			$	120,000
Local property taxes		7,550				3,800				13,800
Sales manager salary										72,000
Store manager salaries		54,500				74,500				89,000
Other noncontrollable costs		10,300				7,700				42,700

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

• Nontraceable fixed corporate expenses total $368,450.
• 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?