The Eastern District of Adelson Inc. is organized as a cost center. The budget for the Eastern District of Adelson Inc. for the month ended December 31 is as follows:

Sales salaries	$819,840
System administration salaries	448,152
Customer service salaries	152,600
Billing salaries	98,760
Maintenance	271,104
Depreciation of plant and equipment	92,232
Insurance and property taxes	41,280
Total	$1,923,968

During December, the costs incurred in the Eastern District were as follows:

Sales salaries	$818,880
System administration salaries	447,720
Customer service salaries	183,120
Billing salaries	98,100
Maintenance	273,000
Depreciation of plant and equipment	92,232
Insurance and property taxes	41,400
Total	$1,954,452

Required:

1. Prepare a budget performance report for the manager of the Eastern District of Adelson for the month of December. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank, or enter zero "0".

	Budget	Actual	Over Budget	Under Budget
Sales salaries	$fill in the blank 2f35d4fe2f8afcb_1	$fill in the blank 2f35d4fe2f8afcb_2	$fill in the blank 2f35d4fe2f8afcb_3	$fill in the blank 2f35d4fe2f8afcb_4
System administration salaries	fill in the blank 2f35d4fe2f8afcb_5	fill in the blank 2f35d4fe2f8afcb_6	fill in the blank 2f35d4fe2f8afcb_7	fill in the blank 2f35d4fe2f8afcb_8
Customer service salaries	fill in the blank 2f35d4fe2f8afcb_9	fill in the blank 2f35d4fe2f8afcb_10	fill in the blank 2f35d4fe2f8afcb_11	fill in the blank 2f35d4fe2f8afcb_12
Billing salaries	fill in the blank 2f35d4fe2f8afcb_13	fill in the blank 2f35d4fe2f8afcb_14	fill in the blank 2f35d4fe2f8afcb_15	fill in the blank 2f35d4fe2f8afcb_16
Maintenance	fill in the blank 2f35d4fe2f8afcb_17	fill in the blank 2f35d4fe2f8afcb_18	fill in the blank 2f35d4fe2f8afcb_19	fill in the blank 2f35d4fe2f8afcb_20
Depreciation of plant and equipment	fill in the blank 2f35d4fe2f8afcb_21	fill in the blank 2f35d4fe2f8afcb_22	fill in the blank 2f35d4fe2f8afcb_23	fill in the blank 2f35d4fe2f8afcb_24
Insurance and property taxes	fill in the blank 2f35d4fe2f8afcb_25	fill in the blank 2f35d4fe2f8afcb_26	fill in the blank 2f35d4fe2f8afcb_27	fill in the blank 2f35d4fe2f8afcb_28
Total	$fill in the blank 2f35d4fe2f8afcb_29	$fill in the blank 2f35d4fe2f8afcb_30	$fill in the blank 2f35d4fe2f8afcb_31	$fill in the blank 2f35d4fe2f8afcb_32

2. For which costs might the manager be expected to request supplemental reports?

1. Customer service salaries.
2. Customer service salaries and maintenance.
3. Customer service and sales salaries as well as maintenance.
4. Maintenance.

abcd

2. PR.09-02B

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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 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:

RevenuesN Region	$3,780,000
RevenuesS Region	5,673,000
RevenuesW Region	5,130,000
Operating ExpensesN Region	2,678,500
Operating ExpensesS Region	4,494,890
Operating ExpensesW Region	3,770,050
Corporate ExpensesDispatching	182,000
Corporate ExpensesEquipment Management	1,200,000
Corporate ExpensesTreasurer's	734,000
General Corporate Officers' Salaries	1,380,000

The company operates three service 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	650		1,105		845
Number of railroad cars in inventory	6,000		8,400		9,600

Required:

1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Round your interim calculations to three decimal places, if required.

	North	South	West
Revenues	$fill in the blank 21019cff3fb105c_1	$fill in the blank 21019cff3fb105c_2	$fill in the blank 21019cff3fb105c_3
Operating expenses	fill in the blank 21019cff3fb105c_4	fill in the blank 21019cff3fb105c_5	fill in the blank 21019cff3fb105c_6
Income from operations before service department charges	$fill in the blank 21019cff3fb105c_7	$fill in the blank 21019cff3fb105c_8	$fill in the blank 21019cff3fb105c_9
Service department charges:
Dispatching	$fill in the blank 21019cff3fb105c_10	$fill in the blank 21019cff3fb105c_11	$fill in the blank 21019cff3fb105c_12
Equipment management	fill in the blank 21019cff3fb105c_13	fill in the blank 21019cff3fb105c_14	fill in the blank 21019cff3fb105c_15
Total service department charges	$fill in the blank 21019cff3fb105c_16	$fill in the blank 21019cff3fb105c_17	$fill in the blank 21019cff3fb105c_18
Income from operations	$fill in the blank 21019cff3fb105c_19	$fill in the blank 21019cff3fb105c_20	$fill in the blank 21019cff3fb105c_21

2. Compute the profit margin.

Division	Profit Margin
North Region	fill in the blank fc9526fe404c008_1 %
South Region	fill in the blank fc9526fe404c008_2 %
West Region	fill in the blank fc9526fe404c008_3 %

Identify the most successful region according to the profit margin.

NorthSouthWest

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

1. The method used to evaluate the performance of the divisions should be reevaluated.
2. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).
3. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).
4. None of these choices would be included.
5. All of these choices (a, b & c) would be included.

abcde

3. PR.09-05B

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Divisional Performance Analysis and Evaluation

The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

	Road Bike Division	Mountain Bike Division
Sales	$1,728,000		$1,760,000
Cost of goods sold	1,380,000		1,400,000
Operating expenses	175,200		236,800
Invested assets	1,440,000		800,000

Required:

1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department charges.

	Road Bike Division	Mountain Bike Division
Sales	$fill in the blank 9c2e0a02bfb1fc2_1	$fill in the blank 9c2e0a02bfb1fc2_2
Cost of goods sold	fill in the blank 9c2e0a02bfb1fc2_3	fill in the blank 9c2e0a02bfb1fc2_4
Gross profit	$fill in the blank 9c2e0a02bfb1fc2_5	$fill in the blank 9c2e0a02bfb1fc2_6
Operating expenses	fill in the blank 9c2e0a02bfb1fc2_7	fill in the blank 9c2e0a02bfb1fc2_8
Income from operations	$fill in the blank 9c2e0a02bfb1fc2_9	$fill in the blank 9c2e0a02bfb1fc2_10

2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your answers to one decimal place.

Division	Profit Margin	Investment Turnover	ROI
Road Bike Division	fill in the blank f7a18ef56fd8047_1 %	fill in the blank f7a18ef56fd8047_2	fill in the blank f7a18ef56fd8047_3 %
Mountain Bike Division	fill in the blank f7a18ef56fd8047_4 %	fill in the blank f7a18ef56fd8047_5	fill in the blank f7a18ef56fd8047_6 %

3. If management's minimum acceptable return on investment is 10%, determine the residual income for each division.

	Residual Income
Road Bike Division
Mountain Bike Division	$fill in the blank f7a18ef56fd8047_8

4. On the basis of income from operations, the

Road BikeMountain Bike

Division is the more profitable of the two divisions. However, income from operations

doesdoes not

consider the amount of invested assets in each division. On the basis of residual income, the

Road BikeMountain Bike

Division