Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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:

RevenuesEast $ 888,000
RevenuesWest 1,032,000
RevenuesCentral 1,870,000
Operating ExpensesEast 567,500
Operating ExpensesWest 625,200
Operating ExpensesCentral 1,173,140
Corporate ExpensesShareholder Relations 152,000
Corporate ExpensesCustomer Support 340,000
Corporate ExpensesLegal 272,600
General Corporate Officers Salaries 282,500

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 companys 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:

East

West

Central

Number of customer contacts 5,000 6,000 9,000
Number of hours billed 1,350 2,000 2,450
Required:
1. Prepare quarterly income 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 (e.g. 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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And GRC Automation In SAP

Authors: Maxim Chuprunov

1st Edition

3642353010, 9783642353017

More Books

Students also viewed these Accounting questions

Question

Solve Problems 120 using ips units. AS 568A No. 160

Answered: 1 week ago