Problem 12.

46
Lone Star Department Stores, Inc. operates a chain of department stores in
Texas. The companys organization chart appears below. Operating data for 20x1
follow.

The following fixed expenses are controllable at the divisional level: depreciation
furnishings, computing and billing, warehouse, insurance, and security. In
addition to these expenses, each division annually incurs $50.000 of computing
costs, which are not allocated to individual stores.
The following fixed expenses are controllable only at the company level:
depreciationbuilding, property taxes, and supervisory salaries. In addition to
these expenses, each division incurs costs for supervisory salaries of $100.000,
which are not allocated to individual stores.
Lone star department stores incurs common fixed expenses of $80.000 which are
not allocated to the two divisions. Income tax expense for 20x1 is $1.950.000
Required:
1. Prepare a segmented income statement similiar to Exhibit 12-7 for Lone
Star Department Stores, Inc. the statement should have the following
columns:
Prepare the statement in the contribution format, and indicate the
controllability of expenses. Subtract all variable expenses, including cost
of merchandise sold, from sales revenue to obtain the contribution margin
2. How would the segmented income statement help the President of Lone
Star Department Stores manage the company?

Problem 12.47
Building Services Co. (BSC) was started a number of years ago by Michel and
Jeanne Forge to provide cleaning services to both large and small business 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 BSCs fulltime employees have been with the
firm for a number of years. Five zone managers are each responsible for
furnishing nightly cleaning services to several businesses. In addition, the zone
manager sells and schedules noncleaning service jobs for the companys central
pool of skilled employees. Informa meetings are held periodically to discuss

BSCs performance, personnel allocations, and scheduling problems. BSCs

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 Comercial
Maintenance Inc. (CMI), which provides similar services in a number of
metropolitan locations but surround BSCs business area. After news of the sale,
several of BSCs long-term employees appeared resentful of the change in
ownership and did not know what to expect.
CMIs senior management met with BSCs managers and announced that Rolf
Bieger would become president of BSC and that BSC would continue to operate
as a separate subsidiary of CMI. Furthermore, in accordance with CMIs
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 BSCs 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
BSCs 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.
Required: Two new systems are being considered at Building Services Co:
Responsibility accounting system
Participatory budgeting system
For each of these systems:
1. Identify at least two behavioral advantages that could arise
2. Identifiy at least two potential problems that could arise
3. Discuss the likelihood that system will contribute to the alignment of
organizational and personal goals