Piedmont Novelties, Inc. sells mechandise 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 recordes:
salesvolume, sales price, and purchase price data:
Raleigh Charlotte Savannah
sale volume 37,000 units 41,000 units 46,000 units
unit selling price$18.00 $16.50 $14.25
unit purchase price$8.25 $8.25 $9.00
The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs:
Raleigh Charlotte Savannah
Sales commissions 6% 6% 6%
Local advertising $16,500 $33,000 $72,000
Local property taxes $6,750 $3,000 $9,000
Sales manager salary 0 0 $48,000
Store manager salaries $46,500 $58,500 $57,000
Other noncontrollable costs$8,700 $6,900 $26,700
Local advertising decisions are made at the store level. The sales manager's salary in Savannah is determined by the Savannah store manager; in contrast, store manager salaries are set by Piedmont Noveltie'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 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 manager's
performance, should the CEO use a store's segmented contribution margin, the profit margin controllable by
the store manager, or a store's segment profit margin ? Justify your answer.