Show-Off, Inc., sells merchandise through three retail outletsin Las Vegas, Reno, and Sacramento-and operates a general corporate headquarters in Reno. 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 Show-Off's accounting records: The sales volume, sales price, and purchase price data follow: Sales volume Unit selling price Unit purchase price Las Vegas 37,100 units $ 19.00 8.75 Reno 41,100 units $ 17.50 8.75 Sacramento 46,040 units $ 15.25 9.75 The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: Las Vegas 5% $16,600 6,800 Reno 5% $33,500 3,050 Sales commissions Local advertising Local property taxes Sales manager salary Store manager salaries Other noncontrollable costs Sacramento 5% $75,000 9,300 49,500 59,000 27,700 47,000 8,800 59,500 6,950 Local advertising decisions are made at the store manager level. The sales manager's salary in Sacramento is determined by the Sacramento store manager, in contrast, store manager salaries are set by Show-Off's vice president. Nontraceable fixed corporate expenses total $293,450. The company uses a responsibility accounting system. Required: 1. Assume the role of Judson Wyatt and prepare a segmented income statement for Show-Off. 2. Identify the probable causes for the poor performance of the weakest store. 3. Which of the following should be reviewed in evaluating the performance of the store manager? Required 1 Required 2 Required 3 Assume the role of Judson Wyatt and prepare a segmented income statement for Show-off. (Round your answers to the nearest whole dollar.) Show-Off, Inc. Las Vegas Reno Sacramento Variable operating expenses: $ 0 0 0 | Total Segment contribution margin Fixed expenses controllable by segment manager: CASA EA SA 0 $ 0 $ $ 0 0 0 0 $ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Profit margin controllable by segment manager Fixed expenses traceable to segment, but controllable by others: $ 0 0 0 Total Segment profit margin $ $ $ $ 0 $ 0 $ $ 0 0 0 $ 0 Building Services Co. (BSC) was started a number of years ago by Jim and Joan Forge to provide cleaning services to both large and small businesses in their home city. Over the years, as local businesses reduced underutilized building maintenance staffs, more and more cleaning services were subcontracted to BSC. BSC also expanded into other building services such as painting and local moving. BSC maintains a pool of skilled workers who are contracted to perform the noncleaning services because these services do not recur on a day-to-day basis for the individual buildings. Many of BSC's full-time employees have been with the firm for a number of years. Five zone managers are each responsible for furnishing recurring nightly cleaning services to several businesses. In addition, the zone manager sells and schedules noncleaning service jobs for the company's central pool of skilled employees. Informal meetings are held periodically to discuss BSC's performance, personnel allocations, and scheduling problems. BSC's budgeting and planning have been done by the Forges, who also manage variations from budgets. The Forges recently decided to retire and sold the business to Commercial Maintenance Inc. (CMI), which provides similar services in a number of metropolitan locations that surround BSC's business area. After news of the sale, several of BSC's long-term employees appeared resentful of the change in ownership and did not know what to expect. CMI's senior management met with BSC's managers and announced that George Fowler would become president of BSC and that BSC would continue to operate as a separate subsidiary of CMI. Furthermore, in accordance with CMI's management philosophy, a responsibility-accounting system is to be implemented at BSC. Also, in line with other CMI subsidiaries, a participatory budgeting process is being considered. However, no decision will be made until an evaluation of BSC's existing policies, operational culture, and management is completed. In view of the significant change in management philosophy, CMI has taken considerable time in explaining how each system operates and assuring BSC's managers that they are expected and encouraged to participate in both the planning and implementation of any of the systems that are to be adopted. Two new systems are being considered at Building Services Co.: Responsibility-accounting system Participatory budgeting system For each of these systems: Required: 1-a. Identify the possible behavioral advantages that could arise as a result of Implementing the responsibility accounting system. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) 2 Managers would be pleased to be responsible only for those items they can control. 2 Managers would be motivated to plan ahead and promote goal congruence. Managers would become more aware and concerned about the effect of their decisions on the organization's other subunits. 2 Managers could resent being measured on an individual basis, since they may be responsible for costs over which they have no control. 2 Managers could focus too much on their own department's goals at the possible detriment to the organization as a whole (sub optimization). 1-b. Identify the potential problems that could arise as a result of implementing the responsibility accounting system. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) 2 Managers would be pleased to be responsible only for those items they can control. Managers would be motivated to plan ahead and promote goal congruence. 2 Managers would become more aware and concerned about the effect of their decisions on the organization's other subunits. 2 Managers could resent being measured on an individual basis, since they may be responsible for costs over which they have no control. Managers could focus too much on their own department's goals at the possible detriment to the organization as a whole (sub optimization). 2-a. Identify the possible behavioral advantages that could arise as a result of Implementing the participatory budgeting system. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double cllck the box with the question mark to empty the box for a wrong answer.) 2 Managers are likely to accept the system and be motivated to attain the budget targets, since they were actively involved in setting the goal. Managers would be motivated to set targets beyond existing standards, resulting in an overall benefit to the organization | Communication and group cohesiveness would be improved, because the managers would feel part of a team. 2 Overemphasis on departmental goals could hurt cross-departmental employee relations. 2-b. Identify the potential problems that could arise as a result of Implementing the participatory budgeting system. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) 2 Managers are likely to accept the system and be motivated to attain the budget targets, since they were actively involved in setting the goal. 2 The managers could be motivated to "pad" their budgets, putting slack in the plan to ensure meeting the goals. communication and group cohesiveness would be improved, because the managers would feel part of a team. 2 overemphasis on departmental goals could hurt cross-departmental employee relations