9.7 Accounting in the Headlines

How should the cost of national advertising by Whole Foods impact the performance report (and segment margin) for each store?

Whole Foods Market, Inc., is a supermarket chain based in Austin, Texas, with 381 stores in the US (it also has stores in the UK and Canada.)  Whole Foods specializes in natural and organic food and has annual sales of $13 billion.

In October 2014, Whole Foods rolled out its first national advertising campaign in the United States. This advertising campaign is centered on the slogan “Values matter,” and is estimated to have a cost of $20 million.  The advertising will be on TV, in print, and online.

Questions

  1. Would each of Whole Foods’ stores be considered to be a cost center, a revenue center, a profit center, or an investment center?
  2. Assume that Whole Foods prepares performance reports for each of its stores. Would you expect to see a portion of the national advertising campaign cost in each store’s segment margin? Why or why not?
  3. Assume now that the advertising campaign turns out to be quite successful because it increases Whole Foods’ visibility and results in increased sales across all stores in the U.S. Should the U.S. store managers be evaluated on the variance between the budgeted national advertising costs and the actual national advertising costs?  Why or why not?