Profit center responsibility reporting for a service company Instructions Quarterly Income Statements Final Questions Instructions Red Line Patroad inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following any income and expense accounts were provided from the trial balance as of December 31: 5678.000 1,042.000 1.880.000 Revenues-East Revenues West Reveros-Central Operating Expenses -East Operating Expenses-West Operating Expenses Central Corporate Expenses-Shareholder Relations Corporate Expenses - Customer Support Corporate Expenses-Lo Genatal Corporate Officers Salaries 563.600 619.680 1.172.940 155.000 300.000 233.100 278.500 The company operates tre 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 point of contact for new service complaints, and requests for reparThe department bebeves that the number of customer contacts is an actly base for this work. The Legal Department provides legal services for division management. The department beloves that the number of hours bied an activity base for this work. The following addisional information has been gathered Instructions Corporate Expenses --Legal General Corporate Officers Sataries 233.100 278,500 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 his work. The following additional information has been gathered: East West Central 8.500 5.500 Number of customer contacts Number of hours billed 4.500 1.350 2.100 2.100 Required: 1. Prepare quarterly come statements showing income from operations for the three divisions. Use three column headings East West and Central 2 Identify the most successful division according to the profit margin. Enter percentage rounded two decimal places leg. 022547 is 22 55%). 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? What is a major weakness of the present method? Quarterly Income Statements 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East West, and Central Red Line Railroad Inc Divisional Income Statements For the Quarter Ended December 31 1 East West Central 2 Revenues Operating expenses Income from operations before service department charges 3 Service department charges Customer Support 7 Legal Total service department charges 6 + Income from operations 2 Compute the profit margin for each division. Enter percentage rounded to decimal places (eg, 22547 is 22.68%) Profit Margin Division East Division % West Division Central Division Now identify the most successful division according to the profit margin: A 3. What would you include in a recommendation to the CEO for a better method for ovaluating the performance of the divisione? What is a major weakness of the present method? A major weakness of the present method is that nonfinancial drivers are not identified a full year's income is needed for assessment. there is no weakness. The present method works well. the assets invested in each division are not considered the service department changes are incorrectly allocated nontinanciar arivers are not lgentinien a full year's income is needed for assessment. there is no weakness. The present method works well. the assets invested in each division are not considered. the service department charges are incorrectly allocated. Which of the following methods would better evaluate divisional performance? Check all that apply. Considering residual income (income from operations less a minimal return on divisional assets). Including direct and indirect operating expenses for each division. Utilizing transfer pricing between divisions. Completing a balanced Scorecard for each service department. ODOO OD Focusing on controllable revenues and expenses. Computing the rate of return on investment (income from operations divided by divisional assets). None of these. The present method works well. Profit center responsibility reporting for a service company Instructions Quarterly Income Statements Final Questions Instructions Red Line Patroad inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following any income and expense accounts were provided from the trial balance as of December 31: 5678.000 1,042.000 1.880.000 Revenues-East Revenues West Reveros-Central Operating Expenses -East Operating Expenses-West Operating Expenses Central Corporate Expenses-Shareholder Relations Corporate Expenses - Customer Support Corporate Expenses-Lo Genatal Corporate Officers Salaries 563.600 619.680 1.172.940 155.000 300.000 233.100 278.500 The company operates tre 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 point of contact for new service complaints, and requests for reparThe department bebeves that the number of customer contacts is an actly base for this work. The Legal Department provides legal services for division management. The department beloves that the number of hours bied an activity base for this work. The following addisional information has been gathered Instructions Corporate Expenses --Legal General Corporate Officers Sataries 233.100 278,500 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 his work. The following additional information has been gathered: East West Central 8.500 5.500 Number of customer contacts Number of hours billed 4.500 1.350 2.100 2.100 Required: 1. Prepare quarterly come statements showing income from operations for the three divisions. Use three column headings East West and Central 2 Identify the most successful division according to the profit margin. Enter percentage rounded two decimal places leg. 022547 is 22 55%). 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? What is a major weakness of the present method? Quarterly Income Statements 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East West, and Central Red Line Railroad Inc Divisional Income Statements For the Quarter Ended December 31 1 East West Central 2 Revenues Operating expenses Income from operations before service department charges 3 Service department charges Customer Support 7 Legal Total service department charges 6 + Income from operations 2 Compute the profit margin for each division. Enter percentage rounded to decimal places (eg, 22547 is 22.68%) Profit Margin Division East Division % West Division Central Division Now identify the most successful division according to the profit margin: A 3. What would you include in a recommendation to the CEO for a better method for ovaluating the performance of the divisione? What is a major weakness of the present method? A major weakness of the present method is that nonfinancial drivers are not identified a full year's income is needed for assessment. there is no weakness. The present method works well. the assets invested in each division are not considered the service department changes are incorrectly allocated nontinanciar arivers are not lgentinien a full year's income is needed for assessment. there is no weakness. The present method works well. the assets invested in each division are not considered. the service department charges are incorrectly allocated. Which of the following methods would better evaluate divisional performance? Check all that apply. Considering residual income (income from operations less a minimal return on divisional assets). Including direct and indirect operating expenses for each division. Utilizing transfer pricing between divisions. Completing a balanced Scorecard for each service department. ODOO OD Focusing on controllable revenues and expenses. Computing the rate of return on investment (income from operations divided by divisional assets). None of these. The present method works well