Veelance Corp., sells merchandise through three retail outlets-in Dallas, Houston, and Austin-and operates a general corporate...

  

Transcribed Image Text:

Veelance Corp., sells merchandise through three retail outlets-in Dallas, Houston, and Austin-and operates a general corporate headquarters in Houston. A review of the company's income statement indicates a record year in terms of sales and profits. Management desires additional insights about the individual stores and has asked you to prepare a segmented income statement. The following information has been extracted from VeeLance's accounting records: • The sales volume, sales price, and purchase price data follow: Dallas 38,500 units $ 33.00 15.75 Sales volume Unit selling price Unit purchase price Sales commissions Local advertising The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: Local property taxes Sales manager salary Store manager salaries Other noncontrollable costs Dallas 7% Average operating assets $ 18,000 7,500 54,000 10,200 Nontraceable fixed corporate expenses total $363,450. The company uses a responsibility accounting system. The average operating assets for each segment: Houston 42,500 units $31.50 15.75 Dallas $ 4,600,000 The company's minimum required rate of return is 8%. Houston 7% 1. Local advertising decisions are made at the store manager level. 2. The sales manager's salary in Austin is determined by the Austin store manager 3. The store manager's salaries are set by VeeLance's vice president. • $ 40,500 3,750 73,500 7,650 Austin 46,600 units $ 29.25 20.25 Houston $ 3,750,000 Austin 7% $ 117,000 13,500 70,500 87,000 41,700 Austin $ 3,900,000 Required: 1. Prepare a segmented income statement for Veelance using the template provided. 2. When evaluating the segment manager, which measure should be used? Why? 3. Using the information provided calculate the ROI and Residual income for each segment manager. 4. Which segment is the weakest performer? Identify the probable causes for the poor performance of the weakest segment. 5. What factors might you consider when deciding whether to eliminate the weakest performing segment? 6. Because of the rising prices of goods, services, housing, etc. the sales staff is requesting a larger percentage for their commissions. The sales staff wants a commission of 15%. What effect would the increase in commission have on each segment and the company as a whole? Should the sales staff receive the increased commission percentage? Explain. Veelance Corp., sells merchandise through three retail outlets-in Dallas, Houston, and Austin-and operates a general corporate headquarters in Houston. A review of the company's income statement indicates a record year in terms of sales and profits. Management desires additional insights about the individual stores and has asked you to prepare a segmented income statement. The following information has been extracted from VeeLance's accounting records: • The sales volume, sales price, and purchase price data follow: Dallas 38,500 units $ 33.00 15.75 Sales volume Unit selling price Unit purchase price Sales commissions Local advertising The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: Local property taxes Sales manager salary Store manager salaries Other noncontrollable costs Dallas 7% Average operating assets $ 18,000 7,500 54,000 10,200 Nontraceable fixed corporate expenses total $363,450. The company uses a responsibility accounting system. The average operating assets for each segment: Houston 42,500 units $31.50 15.75 Dallas $ 4,600,000 The company's minimum required rate of return is 8%. Houston 7% 1. Local advertising decisions are made at the store manager level. 2. The sales manager's salary in Austin is determined by the Austin store manager 3. The store manager's salaries are set by VeeLance's vice president. • $ 40,500 3,750 73,500 7,650 Austin 46,600 units $ 29.25 20.25 Houston $ 3,750,000 Austin 7% $ 117,000 13,500 70,500 87,000 41,700 Austin $ 3,900,000 Required: 1. Prepare a segmented income statement for Veelance using the template provided. 2. When evaluating the segment manager, which measure should be used? Why? 3. Using the information provided calculate the ROI and Residual income for each segment manager. 4. Which segment is the weakest performer? Identify the probable causes for the poor performance of the weakest segment. 5. What factors might you consider when deciding whether to eliminate the weakest performing segment? 6. Because of the rising prices of goods, services, housing, etc. the sales staff is requesting a larger percentage for their commissions. The sales staff wants a commission of 15%. What effect would the increase in commission have on each segment and the company as a whole? Should the sales staff receive the increased commission percentage? Explain.

Answer rating: 100% (QA)

SOLUTION STEP ... View the full answer