A$-$One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer $($CEO$)$ evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December $31,20$Y$3.$

Revenues$$Air Division $ $1,382,700$

Revenues$$Rail Division $1,667,700$

Revenues$$Truck Division $2,983,900$

Operating Expenses$$Air Division $876,200$

Operating Expenses$$Rail Division $992,500$

Operating Expenses$$Truck Division $1,804,500$

Corporate Expenses$$Shareholder Relations $210,300$

Corporate Expenses$$Customer Support $742,400$

Corporate Expenses$$Legal $292,500$

General Corporate Officers$$ Salaries $464,400$

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company$$s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

Air Rail Truck

Number of customer contacts $5,8007,00010,400$

Number of hours billed $1,1001,8001,600$

Division management does not control activities related to the shareholder relations department and general corporate officers$$ salaries.

Required:

Question Content Area

a$.$ Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air, Rail, and Truck.

A$-$One Freight Inc.

Divisional Income Statements

For the Quarter Ended December $31,20$Y$3$

Air Rail Truck

Revenues

$Revenues

$1,382,700$

$Revenues

$1,667,700$

$Revenues

$2,983,900$

Operating expenses

Operating expenses

$876,200$

Operating expenses

$992,500$

Operating expenses

$1,804,500$

Operating income before service department charges

$Operating income before service department charges

$Operating income before service department charges

$Operating income before service department charges

Less service department charges:

Customer support

$Customer support

$Customer support

$Customer support

Legal

Legal

$292,500$

Legal

$292,500$

Legal

Total service department charges $fill in the blank a$94$ab$6$ff$300$ef$86\_21$

$fill in the blank a$94$ab$6$ff$300$ef$86\_22$

$fill in the blank a$94$ab$6$ff$300$ef$86\_23$

Operating income $fill in the blank a$94$ab$6$ff$300$ef$86\_24$

$fill in the blank a$94$ab$6$ff$300$ef$86\_25$

$fill in the blank a$94$ab$6$ff$300$ef$86\_26$

Feedback Area

Feedback

$1.$ Determine the customer contact rate by dividing service cost by output. For each division's customer support, multiply the customer contact rate by the number of customer contacts. Repeat this process for the other service department charges. Subtract the service department charges for a division from that division's operating income before such charges.

Question Content Area

b$.$ What is the profit margin percentage of each division? Round to one decimal place.

Division Profit Margin

Air Division fill in the blank $342$b$3105605$d$062\_1$

$\%$

Rail Division fill in the blank $342$b$3105605$d$062\_2$

$\%$

Truck Division fill in the blank $342$b$3105605$d$062\_3$

$\%$

Identify the most successful division according to the profit margin percentage.

Truck

$3.$ All of the following statements are true regarding the evaluation of divisional performance for A$-1$ except:

A better measure for A$-1$ Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because both measures incorporate asset utilization into the measures.

A better measure for A$-1$ Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because the amount of assets used by a division in earning a return is a very important consideration in evaluating divisional performance.

A better measure for A$-1$ Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because this company requires a significant investment in fixed assets and distribution facilities.

All of these choices are correct.a$.$ Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air, Rail, and Truck.

A$-$One Freight Inc.

Divisional Income Statements

For the Quarter Ended December $31,20$Y$3$