Cathy's Classic Clothes is a retaller that sells to professional women in the northeast. The firm leases space for stores in upscale shopplng centers, and the organizatlonal structure conslsts of reglons, distrlcts, and stores. Each reglon conslsts of two or more distrlcts; each distrlct conslsts of three or more stores. Each store, district, and region has been established as a profit center. At all levels, the company uses a responslbility-accounting system focusing on information and knowledge rather than blame and control. Each year, managers, in consultation with thelr supervisors, establish financlal and nonfinanclal goals, and these goals are integrated into the budget. Actual performance is measured each month. The New England Reglon consists of the Coastal District and the Inland District. The Coastal District includes the New Haven, Boston, and Portland stores. The Coastal Distrlct's performance has not been up to expectatlons in the past. For the month of May, the district manager has set performance goals with the managers of the New Haven and Boston stores, who will recelve bonuses if certain performance measures are exceeded. The manager in Portiand declded not to participate in the bonus scheme. Since the distrlct manager ls unsure what type of bonus will encourage better performance, the New Haven manager will recelve a bonus based on sales in excess of budgeted sales of $570,000, while the Boston manager will recelve a bonus based on operating income in excess of budget. The company's operating Income goal for each store is 12 percent of sales. The budgeted sales revenue for the Boston store is $530,000 Other pertinent data for May are as follows: - Coastal District sales revenue was $1,500,000, and lts cost of goods sold amounted to $633,750. - The Coastal Distrlct spent $75,000 on advertising. - General and administrative expenses for the Coastal Distrlct amounted to $180,000. - At the New Haven store, sales were 40 percent of Coastal District sales, while sales at the Boston store were 35 percent of distrlct sales. The cost of goods sold In both New Haven and Boston was 42 percent of sales. - Variable selling expenses (sales commissions) were 6 percent of sales for all stores, distrlcts, and reglons. - Varlable administratlve expenses were 25 percent of sales for all stores, districts, and reglons. - Maintenance cost includes janitorlal and repalr services and is a direct cost for each store. The store manager has complete control over this outlay. Maintenance costs were incurred as follows: New Haven, $7,500; Boston, $600; and Portland, $4,500. - Acvertising is considered a drect cost for each store and is completely under the control of the store manager. The New Haven store spent two-thirds of the Coastal District total outlay for advertising. Which was 10 times the amount spent in Boston on advertising. - Coastal District rental expense amounted to $150,000. - The rental expenses at the New Haven store were 40 percent of the Coastal District's total. While the Boston store Incurred 30 percent of the district total. - District expenses were allocated to the stores based on sales. - New England Reglon general and administrative expenses of $165,000 were allocated to the Coastal District These expenses were, In turn, allocated equally to the distrlct's three stores. Required: 1. Prepare the May segmented income statement for the Coastal District and for the New Haven and Boston stores. 2 Compute the Portland store's operating income for May. 4. The assistant controller for the New England Region, Jack Isner, has been a close friend of the New Haven store manager for over 20 years. When Isner saw the segmented income statement (as prepared in requirement 1), he realized that the New Haven store manager had really gone overboard on advertising expenditures. To make his frlend look better to the reglonal management, he reclassfied $25,000 of the advertising expenditures as miscellaneous expenses, and burled them in rent and other costs. The assistant controller's actlons volate several standards of ethical conduct for management accountants, including the following: Complete this question by entering your answers in the tabs below. Prepare the May segmented income statement for the Coastal District and for the New Haven and Boston stores. (Do not round intermediate calculations.)