Assignment:
Dave skoldowns and operates a small chain of convenience stores in Waterloo and Cedar Rapids. The company has five stores including downtown store and Big Rock store in the Waterloo division: and a downtown store, a solon store and an airport store in the Cedar Rapids Division. There is also a separate administrative staff that provides market research, personnel and accounting and finance services.
The company had the following results for 20X1 (in thousands):
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Sales revenue
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$8,000
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Cost of merchandise sold
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3,500
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Gross Margin
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4,500
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Operating Income
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2,200
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Income before income taxes
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2,300
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The following Data about 20X1 OPERATIONS WERE ALSO AVAILABLE:
1. All five stores used the same pricing formula: therefore, all had the same gross margin percentage
2. Sales were largest in the downtown stores, with 30% of the total sales volume in each. The Solon and airport stores each provided 15% of total sales volume and the Big rock store provided 10%.
3. Variable operating costs at the stores were 10% of revenue for the downtown stores. The other stores had lower variable and higher fixed costs. Their variable operating costs were only 5% of sales revenue
4. The fixed costs over which the store managers had control were $ 125,000 in each of the downtown stores, $160,000 at Solon and airport, and $80,000 at Big Rock
5. The remaining $910,000 of operating cost consisted of
a) $210,000 controllable by Cedar Rapids division manager but not by individual stores
b) $100,000 controllable by Waterloo division manager but not by individual stores, and
c) $600,000 controllable by administrative staff
6. Of the $600,000 spent by the administrative staff, $350,000 directly supported the Cedar Rapids division, with 20% of the downtown store, 30% for each of the Solon and airport stores, and 20% for the Cedar Rapids in general. Another $ 140,000 supported the Waterloo division, 50% for the downtown store, 25% for the Big Rock store and 25% supporting Waterloo operations in general. The other $110,000 was for general corporate expenses.
Prepare an income statement by segments using the contribution approach to responsibility accounting.
Column headings should be as follows:
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Breakdown into two Divisions Breakdown of Waterloo Division Breakdown of cedar rapids Division
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Waterloo Cedar Rapids Not Allocated DownTown Big Rock Not Allocated DownTown Solon Airport
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