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Decentralisation and Segment Reporting
Sparky Electrical Services is organised into three divisions: Metro, Suburban and Regional. The company uses a responsibility accounting system to evaluate the performance of its divisions and divisional managers. Data for the divisions for the last year were as follows:
Metro
Suburban
Regional
Service revenue
$950,000
$750,000
$350,000
Variable expenses
150,000
100,000
50,000
Fixed expenses controllable by divisional manager
350,000
270,000
Fixed expenses traceable to division but controllable by others
180,000
40,000
In addition to the expenses listed above, the company had $450,000 of common fixed expenses which it allocated to each division based on their percentage of total service revenue earned.
Required
Prepare a segmented income statement for Sparky Electrical Services that highlights
the profitability/performance of the three divisions and the divisional managers.
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