Cash Budget The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: May June July Sales $119,000 $150,000 $203,000 Manufacturing costs 50,000 65,000 73,000 Selling and administrative 35,000 41,000 45,000 expenses Capital expenditures 49,000 The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $10,000 of the estimated monthly manufacturing costs. The annual insurance premium paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 75% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of May 1 include cash of $45,000, marketable securities of $64,000, and accounts receivable of $142,000 ($104,000 from April sales and $38,000 from March sales). Sales on account for March and April were $95,000 and $104,000, respectively. Current liabilities as of May 1 include $12,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $18,000 will be made in June. Sonoma's regular quarterly dividend of $10,000 is expected to be declared in June and paid in July. Management wants to maintain minimum cash balance of $35,000. Profit Center Responsibility Reporting for a Service Company Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31: Revenues-N Region $822,800 Revenues-S Region 990,500 Revenues-W Region 1,768,000 Operating Expenses-N Region 521,400 Operating Expenses S Region 589,500 Operating Expenses-W Region 1,069,200 Corporate Expenses-Dispatching 451,500 Corporate Expenses-Equipment Management 162,800 Corporate Expenses - Treasurer's 125,100 General Corporate Officers' Salaries 276,300 The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer's Department. The Treasurer's Department and general corporate officers' salaries are not controllable by division management. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the inventories of railroad cars. It makes sure the right freight cars are at the right place at the right time. The Treasurer's Department conducts a variety of services for the company as a whole. The following additional information has been gathered: North South West Number of scheduled trains 5,400 6,500 9,600 Number of railroad cars in inventory 900 1,500 1,300 Required: 1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations. Thomas Railroad Company Divisional Income Statements For the Quarter Ended December 31 North South West Revenues $1 Operating expenses Income from operations before service department charges Less service department charges: Dispatching 1000 000 1000 DO. Equipment Management Total service department charges Income from operations $ 2. What is the profit margin of each division? Round to one decimal place. Region Profit Margin North Region % South Region % West Region % Identify the most successful region according to the profit margin. 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? a. The method used to evaluate the performance of the divisions should be reevaluated. b. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets). C. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets). d. None of these choices would be included. e. All of these choices (a, b & c) would be included