Red Line Railroad Inc. has three regional divisions organized as profit centers.
eBook Show Me How Print Item Instructions Red Line Railroad 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 quarterly income and expense accounts were provided from the trial balance as of December 31 Revenues--East $ 890.000 Revenues-West 1.046,000 1.880,000 563,900 625,920 1,167,540 Revenues Central Operating Expenses-East Operating Expenses-West Operating Expenses --Central Corporate Expenses-Shareholder Relations Corporate Expenses Customer Support Corporate Expenses--Legal General Corporate Officer Salaries 159.000 ) 314,500 271,200 277.750 The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Reintion 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 in an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed in an activity base for this work. The following additional information has been gathered West Central East 4.500 Number of customer contacts 5,500 8.500 Number of hours billed 1.250 2.100 2,300 Recured eBook Show Me How Print Item Required: 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings, East West, and Central 2. Identity the most successful division according to the profit margin. Enter percentage rounded wo decimal places (eg, 0.22547 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 Shaded cells have feed 1. Prepare quarterly Income statements showing income from operations for the three divisions. Use three column headings: East West and Central Score: 0/84 Red Line Railroad in Divisional Income Statements For the Quarter Ended December 31 East 1 West Central 2 Revenues 3 Operating expenses + Income from operations before service department charges 5 Service department charges Customer Support 1 Legal eBook Show Me How Print Item Divisional Income Statements For the Quarter Ended December 31 1 East West Central 2 Revenues 3 Operating expenses * Income from operations before service department charges 5 Service department charges: Customer Support 1 Legal Total service department charges 9 Income from operations 6 8 Feedback Check My Work Determine the customer contact rate by dividing service cost by output. For each division's customer support, multiply the cu of customer contacts. Repeat this process for the other service department charges. Subtract the service department charge income from operations before such charges Shaded cells have feedback 2 Compute the profit margin for each division Enter percentage rounded two decimal places (eg: 22547 is 22 55%) Division Profit Margin East Division West Division Central Division Points 0/3 Now Identify the most successful division according to the profit margin: Points 0/1 Feedback Check My Work Income from operations divided by revenues equals profit margin 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? Amator weakness of the present method is that there is no weakness. The present method works well eBook Show Me How Print Item A major weakness of the present method is that there is no weakness. The present method works well the service department charges are incorrectly allocated norfinancial drivers are not identified the assets invested in each division are not considered a full year's income is needed for assessment I Points 0 Which of the following methods would better evaluate divisional performance? Check all that apply including direct and indirect operating expenses for each division Considering residual income income from operations less a minimal return on divisional assets) Focusing on controllable revenues and expenses Utilizing transfer pricing between divisions I Completing a balanced Scorecard for each service department None of these. The present method works well Computing the rate of return on investment (income from operations divided by divisional assets) Check My Work Date
