required, selling all its excess capacity to the Audit Division. The Tax Division would still be responsible for paying the salaries of their employees. Complete the following Divisional Income Statements. If there is no amount or an amount is zero, enter "0". BOR CPAs, Inc. Divisional Income Statements For the Year Ended December 31, 2048 Audit Division Tax Division Total Company Fees earned: Audit fees (16 engagements) Tax fees (45 engagements) $1,200,000 $1,200,000 $708,750 Transfer pricing fees 708,750 Expenses: Variable: Audit hours provided by Audit Division Tax hours provided by Tax Division (180,000) (236,250) (180,000) (236,250) Excess capacity hours paid to salaried staff Audit hours provided by Tax Division Fixed expenses (50,000) Operating income before support department allocations (65,500) (115,500) Support department allocations for payroll Operating income Feedback Y Check My Work Compute the price charged by the Tax Division to the Audit Division, and both the transfer pricing fees and cost to the Tax Division of the sale of its excess hours. Be sure to revise the Total Company, Operating income before Sundort department allocations, and Operating income totals using ypur revised amounts. Negotiated Transfer Price Mr. Bailey asks that you prepare Divisional Income Statements showing what 20Y8 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a negotiated transfer price. The divisional manapers tell you that, with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would agree to a negotiated rate of $80 per hour to be paid to the Tax Division for the Check My Work A 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 operating income 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 $1,144,400 Revenues-S Region 1,338,000 Revenues-W Region 2,437,400 Operating Expenses-N Region 725,200 Operating Expenses S Region 796,300 Operating Expenses-W Region 1,474,000 Corporate Expenses-Dispatching 636,800 Corporate Expenses-Equipment Management 206,400 Corporate Expenses-Treasurer's 174,000 General Corporate Officers' Salaries 384,400 The company operates three support departments: the Dispatching Department, the Equipment Management Department, and the Treasurer's Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. 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 5,000 6,000 8,900 Number of railroad cars in inventory 1,100 1,700 1,500 Required: 1. Prepare quarterly income statements showing operating income 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 Operating expenses Operating income before support department allocations Support department allocations: Dispatching Check My Work Operating expenses Operating income before support department allocations Support department allocations: Dispatching Equipment Management 999 Total support department allocations Operating income Feedback * Check My Work 1. Determine the dispatching rate per train by dividing service cost by output. For each region's dispatching cost, multiply the dispatching rate by the number of scheduled trains. Repeat this process for the other support department allocations. Subtract the support department allocations for a region from that region's operating income before such allocations. 2. What is the profit margin of each region? Round to one decimal place. Region Profit Margin North Region % South Region % West Region % Identify the most successful region according to the profit margin. West 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the regions? a. The method used to evaluate the performance of the regions should be reevaluated. b. A better regional performance measure would be the return on investment (operating income divided by regional assets). C. A better regional performance measure would be the residual income (operating income less a minimal return on regional assets). d. None of these choices would be included. e. All of these choices (a, b & c) would be included. Feedback Check My Work Check My Work required, selling all its excess capacity to the Audit Division. The Tax Division would still be responsible for paying the salaries of their employees. Complete the following Divisional Income Statements. If there is no amount or an amount is zero, enter "0". BOR CPAs, Inc. Divisional Income Statements For the Year Ended December 31, 2048 Audit Division Tax Division Total Company Fees earned: Audit fees (16 engagements) Tax fees (45 engagements) $1,200,000 $1,200,000 $708,750 Transfer pricing fees 708,750 Expenses: Variable: Audit hours provided by Audit Division Tax hours provided by Tax Division (180,000) (236,250) (180,000) (236,250) Excess capacity hours paid to salaried staff Audit hours provided by Tax Division Fixed expenses (50,000) Operating income before support department allocations (65,500) (115,500) Support department allocations for payroll Operating income Feedback Y Check My Work Compute the price charged by the Tax Division to the Audit Division, and both the transfer pricing fees and cost to the Tax Division of the sale of its excess hours. Be sure to revise the Total Company, Operating income before Sundort department allocations, and Operating income totals using ypur revised amounts. Negotiated Transfer Price Mr. Bailey asks that you prepare Divisional Income Statements showing what 20Y8 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a negotiated transfer price. The divisional manapers tell you that, with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would agree to a negotiated rate of $80 per hour to be paid to the Tax Division for the Check My Work A 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 operating income 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 $1,144,400 Revenues-S Region 1,338,000 Revenues-W Region 2,437,400 Operating Expenses-N Region 725,200 Operating Expenses S Region 796,300 Operating Expenses-W Region 1,474,000 Corporate Expenses-Dispatching 636,800 Corporate Expenses-Equipment Management 206,400 Corporate Expenses-Treasurer's 174,000 General Corporate Officers' Salaries 384,400 The company operates three support departments: the Dispatching Department, the Equipment Management Department, and the Treasurer's Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. 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 5,000 6,000 8,900 Number of railroad cars in inventory 1,100 1,700 1,500 Required: 1. Prepare quarterly income statements showing operating income 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 Operating expenses Operating income before support department allocations Support department allocations: Dispatching Check My Work Operating expenses Operating income before support department allocations Support department allocations: Dispatching Equipment Management 999 Total support department allocations Operating income Feedback * Check My Work 1. Determine the dispatching rate per train by dividing service cost by output. For each region's dispatching cost, multiply the dispatching rate by the number of scheduled trains. Repeat this process for the other support department allocations. Subtract the support department allocations for a region from that region's operating income before such allocations. 2. What is the profit margin of each region? Round to one decimal place. Region Profit Margin North Region % South Region % West Region % Identify the most successful region according to the profit margin. West 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the regions? a. The method used to evaluate the performance of the regions should be reevaluated. b. A better regional performance measure would be the return on investment (operating income divided by regional assets). C. A better regional performance measure would be the residual income (operating income less a minimal return on regional assets). d. None of these choices would be included. e. All of these choices (a, b & c) would be included. Feedback Check My Work Check My Work