12.4 What benefits potentially accrue to organisations that decentralise? What negative consequences can arise from decentralization?

E12.26 Business unit profit statement: service company

Bell Electrical Services is organised into three divisions: Metro, Suburban and Regional. Data for these divisions for last year were as follows:

Metro Suburban Regional

Service revenue $1 900 000 $1 500 000 $700 000

Variable expenses 300 000 200 000 100 000

Controllable fixed expenses 700 000 540 000 200 000

Fixed expenses controllable by

others 360 000 300 000 80 000

In addition to the expenses listed above, the company had $90 000 of common fixed expenses. Income tax expense for the year was $490 000.

Required: 1. Prepare a profit statement for Bell Electrical Services that highlights the profitability/performance of the three business units and the business unit managers. Use the contribution format.

2. Show how the solution will change if the following information changes: the sales revenues were $1 920 000 and $1 560 000 for Metro and Suburban, respectively.