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Q # 2 (Chapter 11 & 12) Haley Romeros had just been appointed vice president of the Rocky Mountain Region of the Bank Services Corporation

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Q # 2 (Chapter 11 & 12) Haley Romeros had just been appointed vice president of the Rocky Mountain Region of the Bank Services Corporation (BSC). The company provides check processing services for small banks. The banks send checks presented for deposit or payment to BSC, which records the data on each check in a computerized database. BSC then sends the data electronically to the nearest Federal Reserve Bank check-clearing center where the appropriate transfers of funds are made between banks. The Rocky Mountain Region has three check processing centers, which are located in Billings, Montana; Great Falls, Montana; and Clayton, Idaho Prior to her promotion to vice president, Ms. Romeros had been the manager of a check processing center in New Jersey. Immediately after assuming her new position, Ms. Romeros requested a complete financial report for the just-ended fiscal year from the region's controller, John Littlebear. Ms. Romeros specified that the financial report should follow the standardized format required by corporate eadquarters for all regional performance reports. That report follows: Bank Services Corporation (BSC) Rocky Mountain Region Financial Performance Check Processing Centers Total Billings Great Falls Clayton Sales .. . . . ... .. .... $50,000,000 $20,000,000 $18,000,000 $12,000,000 Operating expenses Direct labor ...... 32,000,000 12,500,000 11,000,000 8,500,000 Variable overhead . . ... 850,000 350,000 310,000 190,000 Equipment depreciation 3,900,000 1,300,000 1,400,000 1,200,000 Facility expense* . . . 2,800,000 900,000 800,000 1,100,000 Local administrative expense 450,000 140,000 160,000 150,000 Regional administrative expense ........ .. .. 1,500,000 600,000 540,000 360,000 Corporate administrative expense'....... .. .. 4,750,000 1,900,000 1,710,000 1.140,000 Total operating expense . 46.250,000 17,690,000 15,920,000 12,640,000 Net operating income (loss) ... . .. $ 3,750,000 $ 2.310,000 $ 2,080,000 $ 1640,000 Includes buliding rental expense for the Bilings and Great Falls locations and building depreciation for the Clayton location Local administrative expenses are the administrative expenses incurred at the check processing centers. Regional administrative expenses are allocated to the check processing centers based on sales. Corporate administrative expenses are charged to segments of the company such as the Rocky Mountain Region and the check processing centers at the rate of 9.5% of their sales. Upon seeing this report, Ms. Romeros summoned John Littlebear for an explanation. Romeros : What's the story on Clayton? It didn't have a loss the previous year did it? Littlebear : No, the Clayton facility has had a nice profit every year since it opened six years ago, but Clayton lost a big contract this year. Romeros : Why

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